Working Paper: CEPR ID: DP3793
Authors: Klaus Schmidt; Monika Schnitzer
Abstract: This Paper discusses the economic merits of direct or indirect governmental support for open source projects. Software markets differ from standard textbook markets in three important respects that may give rise to market failures: (i) large economies of scale, (ii) crucially important innovations, (iii) significant network effects and switching costs. We analyse the differences between proprietary software and open source software with respect to these market features and ask whether open source as an alternative to proprietary software can mitigate these problems. Then we discuss the implications of various forms of governmental support for open source.
Keywords: innovation; incentives; open source; public goods; public subsidies; software market
JEL Codes: H41; O31; O38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Governmental support for open source software (L17) | More efficient market outcome (D61) |
| Open source software pricing at marginal cost (L17) | Mitigation of market failures associated with proprietary software (L17) |
| Open source software (L17) | Competitive pressure on proprietary software developers (L17) |
| Government intervention (O25) | Favoring open source software (L17) |
| Government subsidies (H23) | Distortion of market dynamics (D49) |
| Government favoritism (H81) | Inefficiencies in the market (D61) |