Over the past decade, many profit-seeking technology firms voluntarily made their proprietary software open-source. In this paper, we study firm’s motivation of such voluntary open-source and its implications. Through analyzing the tradeoff between supply-side externality and demand-side appropriability, we identify the conditions under which firms will voluntarily open source. Our result highlights the importance of supply-side benefit in open-source decisions. We also find that though open-source increases product quality, it may surprisingly reduce social welfare because of over-investment in product quality. The role of loss of quality control is also investigated, where we show that cost concern may limit a firm’s incentive to open source. Finally, different firms’ incentives to open source in competition are contrasted. We find that one firm’s open-source encourages the other to follow, yet both firms could make lower profit in equilibrium. Our work deepens our understanding of this nascent phenomenon and offers advices to practitioners.
Ma, Liye; Chen, Pei-yu; and Mukhopadhyay, Tridas, "Voluntary Open-Source - The Effect Appropriability, Externality, and Uncertainty" (2008). ICIS 2008 Proceedings. 54.