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By modifying Hotelling model, we research the differentiation decisions between open source software (OSS) and proprietary software (PS) and the location decisions of proprietary software when open source software and proprietary software coexist in a software market. In this paper, we assume proprietary software producer pursues profit maximization and open source software is freely available. The study finds that: (i) Higher (resp. lower) the OSS's learning cost, smaller (resp. greeter) the software differentiation between OSS and PS; (ii) the compatibility degree between open source and proprietary software affects software differentiation; (iii) how the network externality and OSS user's software development skills affect the software differentiation decisions and the location decisions of proprietary software depends on the compatibility degree between PS and OSS.
Date of Conference: 7-9 Nov. 2010