Mustonen (2005)

Source Details

Mustonen (2005)
Title:	When Does a Firm Support Substitute Open Source Programming?
Author(s):	Mustonen, M.
Year:	2005
Citation:	Mustonen, Mikko. When does a firm support substitute open source programming?. Journal of Economics & Management Strategy 14.1 (2005): 121-139.
Link(s):	Definitive , Open Access
Key Related Studies:	Katz and Shapiro (1985) Landes and Posner (1989) Yoon (2001) Lerner and Tirole (2002) Banerjee (2003)
Discipline:	L13: Oligopoly and Other Imperfect Markets L15: Information and Product Quality • Standardization and Compatibility L86: Information and Internet Services • Computer Software O32: Management of Technological Innovation and R&D O34: Intellectual Property and Intellectual Capital
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About the Data
Data Description:
Data Type:	Secondary data
Secondary Data Sources:	Business Software Alliance
Data Collection Methods:	Quantitative Collection Methods Quantitative data/text mining Qualitative Collection Methods Case Study
Data Analysis Methods:	Quantitative Analysis Methods Quantitative content analysis (e.g. text or data mining)
Industry(ies):	Software publishing Computer programming
Country(ies):	Finland European Union United States
Cross Country Study?:	Yes
Comparative Study?:	Yes
Literature review?:	Yes
Government or policy study?:	No
Time Period(s) of Collection:	1996-2005
Funder(s):	The Finnish Academy

Abstract

"Software firms are observed to support programmers’ communities, which develop rival open source programs. A firm selling a copyright program has an incentive to support substitute copyleft programming when support creates compatibility between the programs and programs exhibit network effects. Costly compatibility benefits the firm as its consumers gain access to the community’s services but may also hurt the firm because it cannot profit from the valuation difference between incompatible networks. The incentive arises under a weak network effect even when the consumers’ benefit is small. Standardization and enlarging the open source programmers’ community do not always increase welfare."

Main Results of the Study

• The study finds that even when a copyleft will compete with a firm’s program, the firm appears to be willing to invest large resources in order to support a copyleft community.
• Supporting copyleft development facilitates compatibility between the programs although support is costly.
• Supporting copyleft communities depends on two parameters: the consumers’ benefit from the copyleft community and the strength of the network effect. If the consumer’s benefit is above a critical boundary value, then the firm prefers compatibility (will support the copyleft community). However, if the consumers’ benefit is below the boundary value, the firm prefers incompatibility (will not support the copyleft community).
• The author notes that the introduction of a common network and a benefit from the user innovation of the copyleft programmers’ community increase the consumers ’willingness to pay for the firm’s program.

Policy Implications as Stated By Author

Society can impose compatibility for example through an industry standard, by subsidizing and supporting developers or by legal or administrative means. The welfare analysis carried out in this study shows that, contrary to received view, standardization or society’s support of copyleft development might have adverse welfare implications.

Coverage of Study

Coverage of Fundamental Issues

Issue	Included within Study
Relationship between protection (subject matter/term/scope) and supply/economic development/growth/welfare
Relationship between creative process and protection - what motivates creators (e.g. attribution; control; remuneration; time allocation)?
Harmony of interest assumption between authors and publishers (creators and producers/investors)
Effects of protection on industry structure (e.g. oligopolies; competition; economics of superstars; business models; technology adoption)
Understanding consumption/use (e.g. determinants of unlawful behaviour; user-generated content; social media)

Coverage of Evidence Based Policies

Issue	Included within Study
Nature and Scope of exclusive rights (hyperlinking/browsing; reproduction right)
Exceptions (distinguish innovation and public policy purposes; open-ended/closed list; commercial/non-commercial distinction)
Mass digitisation/orphan works (non-use; extended collective licensing)
Licensing and Business models (collecting societies; meta data; exchanges/hubs; windowing; crossborder availability)
Fair remuneration (levies; copyright contracts)
Enforcement (quantifying infringement; criminal sanctions; intermediary liability; graduated response; litigation and court data; commercial/non-commercial distinction; education and awareness)

Datasets

Sample size:	2
Level of aggregation:	Open and closed development models
Period of material under study:	1986-2005