Free and Open-Source Software: Coordination and Competition
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Abstract:
Free and Open-Source Software (FOSS) are developed by a community of developers led by a coordinator. Coordinators balance the following trade-off: (i) more developers improve FOSS’ quality—a positive vertical differentiation effect; (ii) more developers lead to more diverse views, driving FOSS characteristics away from existing developers’ preferences—a negative horizontal differentiation effect. To attract more developers, coordinators may improve their level of coordination, increasing the marginal vertical network effect, or adopt more permissive Open-Source licenses, increasing the marginal horizontal network effect. Permissive Open-Source licenses can intensify competition when FOSS compete with proprietary software, resulting in lower prices. I study coordinators with different motivations: self-interested Founders, volunteering Altruists, and profit-driven Managers. Altruists and Managers fail to maximize total surplus, while Founders generate higher total surplus than Altruists.