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Linux vs Windows
The Economics of Open Source Software Development Jiirgen Bitzer and Philipp J. H. Srhroder (Editurs) O 2006 Published by Elsevier B.V.

Linux vs. Windows: A Comparison of Application and Platform Innovation Incentives for Open Source and Proprietary Software Platforms
Nicholas Economides and Evangelos Katsamakas

ABSTRACT
The chapter analyzes and compares the investment incentives of platform and application developers for Linux and Windows. We find that the level of investment in applications is larger when the operating system is open source rather than proprietary. The comparison of the levels of investment in the operating systems depends, among others, on reputation effects and the number of developers. The chapter also develops a short case study comparing Windows and Linux and identifies new directions for open source software research. Keywords: Open Source Software, operating systems, technology platforms, Linux, innovation incentives. JEL Classification: L 10, L86, L3 1.

10.1 INTRODUCTION
Open source software is an emerging type of software that may fundamentally affect the business and economic features of the software industry. Linux, an open source operating system, has been the prominent example of the potential of the open source movement, competing against Microsoft Windows, the incumbent operating system.

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Nicholas Economides and Evangelos Katsamkas

This chapter analyzes the incentives to invest in application software and an operating system under two different software ecosystems: one based on an open source operating system, such as Linux, and the other based on a proprietary operating system, such as Microsoft Windows. We build a model extending Economides and Katsamakas (2005) to compare the innovation incentives of application developers and operating system developers for Linux and Windows. In our model, firms and developers invest to improve the quality of the platform or the application and expand the demand by


References: Bitzer, J., 2004. Commercial vs. open source software: The role of product heterogeneity in competition. Economic Systems, 28(4), 369-381. Bitzer, J. and P. J. H. Schroder, 2003. Competition and Innovation in a Technology Setting Software Duopoly. DIW Discussion Paper No. 363. Casadesus-Masanell, R. and P. Ghemawat, 2003. Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows. Harvard Business School Working Paper 04-012. Comino S. and F. Manenti, 2005. Government policies supporting open source software for the mass market. Review of Industrial Organizaiion, 26(2), 217-240. DiBonna, C. and S. Ockman, 1999. Open Sources: Voices front the Open Source Rei~olution. O 'Reilly & Associates, Sebastopol, USA. Economides, N. and E. Katsamakas, 2006. Two-sided competition of proprietary vs. open-source technology platforms. Management Science, forthcoming. Fink, M., 2003. The Business and Economics of Linux and Open Source. Prentice Hall, Upper Saddle River, USA. Franke, N. and E. von Hippel, 2003. Satisfying heterogeneous user needs via innovation toolkits: The case of Apache security software. Research Policy, 32(7), 1199-1215. Johnson, J. P., 2002. Open source software: Private provision of a public good. Journal of Economics & Management Strategy, 1l(4). 637-662. Lemer, J. and J. Tirole, 2001. The open source movement: Key research questions. European Economic Review, 45(4-6), 819-826. Lemer, J. and J. Tirole, 2002. Some simple economics of open source. Journal of Industrial Economics, 50(2), 197-234. Lerner, J. and J. Tirole, 2004. The Economics of Technology Sharing: Open Source and Beyond. NBER Working Paper No. 10956. Lessig, L., 2001. The Future of Ideas. Random House, New York, USA. Mustonen, M., 2003. Copyleft - the economics of Linux and other open source software. Informulion Economics and Policy, 15(1), 99-121. Mustonen, M., 2005. When does a firm support substitute open source programming. Journal qf Econontics and Munugm~entStrategy, 14(1), 121-139. Raymond, E. S., 2001. The Cathedral and the Bazaar: Musings on Linux and Open Source by an Accidental Revolutionary. O 'Reilly & Associates, Sebastopol. USA. von Hippel, E., 2005. Denlocratizing Innovation. MIT Press, Cambridge, USA.
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