The Impact of Commercial Open Source Software on Proprietary Software Producers and Social Welfare

Purpose: A growing number of commercial open source software, based on community open source, appears in many segments of the software market. The purpose of this study is to investigate how commercial open source software affects the pricing (market share or profit) of proprietary software producer, consumer surplus and social welfare. Design/methodology: To analyze the impact of commercial open source software on proprietary software producer, this study constructs two vertical-differentiation models: the basic model considers proprietary software only competing with community open source software, and its extended one considers proprietary software competing with both community and commercial open source software. Findings: This study mainly finds that the presence of commercial open source software can lead to the decrease of the software price and profit for proprietary software producer, while the consumer surplus and social welfare will be increased. However, it does not necessarily cause the decline in the market share for proprietary software producer. Originality/value: The main contribution of this study is to examine the effect of commercial open source software on the competitive strategies of proprietary software producer, consumer surplus and social welfare.