Does possessing an installed base induce a proprietary software producer to act aggressively or mildly in pricing and intrinsic quality provision?
Published date | 01 May 2023 |
Author | Chung‐Hui Chou |
Date | 01 May 2023 |
DOI | http://doi.org/10.1111/sjpe.12335 |
Scott J Polit Econ . 2023;70:133–143. wileyonlinelibrary.com/journal/sjpe
|
133
© 2022 Scottis h Economic Societ y.
1 | INTRODUCTION
It is common to obser ve software markets with com petition bet ween open- source soft ware (OSS) and pro-
prietary s oftware (PS) . This kind of market ge nerally has som e common feature s. First, as m entioned in
Sen (2007 ), OSS is usually the l ate entrant which leads to t he fact that PS has accum ulated users as an inst alled
base at the time of OSS e ntering the market. Second , due to asymmetric designs, co mpatibility between OS S
and PS is not only as ymmetric but also partia l as well. If consumers buy PS, t hen they may enjoy full network
benefits of PS i nstalled bas e naturally. However, due to par tial compatibility betwe en OSS and PS, consu m-
ers can only en joy network benefits of PS ins talled base partially if t hey use OSS. Third, PS usually has m ore
Received: 6 Dece mber 2020
|
Accepted: 12 July 20 22
DOI: 10 .1111/sjpe.1 2335
ORIGINAL ARTICLE
Does possessing an installed base induce a
proprietary software producer to act aggressively
or mildly in pricing and intrinsic quality provision?
Chung- Hui Chou
Departm ent of Finance, I- Shou University,
Kaohsiung City, Taiwan
Correspondence
Chung- Hui Chou, Department of F inance,
I- Shou Univer sity, Kaohsiung Cit y 84001,
Taiwan.
Email: chchou@isu.edu.tw
Abstract
This paper investig ates competition bet ween open- source
software (OSS) and p roprietar y software (PS) whi ch pos-
sesses an instal led base. We find that an increase in PS in-
stalled base doe s not necessarily in duce the PS producer
to increase price or red uce intrinsic qualit y. Specifically, if
OSS is weakly (moderate ly) compatible with PS , then an
increase in PS inst alled base induces t he PS producer to
invest less (more) in intrinsi c quality. Regarding the price of
PS, if OSS is highly compat ible with PS posses sing a large
installed base, t hen an increase in ins talled base induce s
the PS producer to sell p roducts for a lower price.
KEYWORDS
installed ba se, intrinsic quality, open- source sof tware, partial
compatibility, proprietary software
JEL CLASSIFI CATION
L11; L13; L14; L15; L17
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