The differentiation strategy for proprietary software firms when Open Source software appears
Mingqing Xing1,2
COMPUTER MODELLING & NEW TECHNOLOGIES 2014 18(12B) 432-437
1School of Economics and Management, Weifang University, Weifang, 261061, China
2Neural Decision Science Laboratory, Weifang University, Weifang, 261061, China
By extending the Hotelling model, this paper studies the software location and differentiation strategy for proprietary software firm when open source software emerges. It assumes that proprietary software firm pursues profit maximization and open source software can be freely available andmainly finds that: (i) Higher (resp. lower) the learning (maintenance or development) costs of open source software, smaller (resp. greeter) the software differentiation. (ii) the compatibility degree between open source and proprietary software affects the software differentiation strategy for proprietary software firm. (iii) the impact of network externalities or user’s software development skills on proprietary software firm’s software location and differentiation strategy may depend on the compatibility degree between open source and proprietary software.