Commercial versus open source software: the role of product heterogeneity in competition

The emergence and market success of Linux in recent years has been impressive. The paper investigates the question of why some producers of a proprietary software support the development of open source software (OSS) while others refuse any support. As an analytical framework, a simple Launhardt–Hotelling model is used to show that the emerging price pressure on the former monopolists depends on the extent of the current heterogeneity between OSS and the proprietary software of the incumbents. The paper argues that the product heterogeneity can explain the differing real-world behavior of commercial software producers.