This paper analyzes the impact on social welfare of government policies supporting open source software (OSS). Mass-market consumers can be divided between those who are informed about the existence of OSS and those who are uninformed. Since OSS producers have little incentive to advertise, there may be a substantial mass of uniformed consumers, leading to market failures that may justify government intervention. We study three government policies: (a) mandated adoption, whereby the government forces public agencies, schools, and universities to adopt OSS, (b) information provision, whereby the government informs the uninformed users about the existence and the characteristics of OSS, and (c) subsidy, whereby the government makes a payment to consumers if they adopt OSS. We show that mandated adoption and information provision may increase social welfare, but the subsidy always reduces it. When network externalities are added to the model, we show that mandated adoption and information provision may increase social welfare if they help the market to tip towards standardization.
Review of Industrial Organization – Springer Journals
Published: Dec 7, 2004
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