Since their appearance, open source communities have become increasingly successful and seemingly pose a real threat to traditional proprietary software vendors. Because open source software has now achieved both recognition and legitimacy, obtaining products and services from communities offers firms an additional alternative in traditional make-or-buy decisions. Transaction cost economics has been widely used as a theory to explain and predict the appropriate governance structure for make-or-buy decisions. By comparing transaction and production costs along a continuum of variable asset specificity, transaction cost economics helps to explain and predict the circumstances in which the open source community is the appropriate governance structure for specific make-or-buy decisions. Our work contributes to existing open source software research by shedding light on the factors that influence the appropriateness of this form of software production for firms. We are also contributing to the body of research surrounding transaction cost economics by incorporating into the original analysis the addition of “communities” as a unique governance alternative.
Greiner, Martina and Goodhue, Dale, "Make-or-Buy in the Age of Open Source: A Transaction Cost Analysis" (2005). ICIS 2005 Proceedings. 55.