Network Externalities, Incumbent’s Competitive Advantage and the Degree of Openness of Software Start-Ups

Stefano Colombo (), Luca Grilli and Cristina Rossi-Lamastra ()

Computational Economics, 2014, vol. 44, issue 2, 175-200

Abstract: This paper proposes a formal model that analyzes the degree of openness chosen by start-ups when entering the software industry. In line with the literature, we label as degree of openness the extent to which software start-ups mix open source (OS) and proprietary solutions in the portfolio of software products they offer. We relate the choice of the degree of openness to two key characteristics of the market segments in which software start-ups operate: the strength of the network externalities and the competitive advantage of the incumbent. Specifically, by modelling (price) competition between an incumbent and an entrant in two ways, i.e., the entrant is price-setter or price-taker, we derive the necessary condition(s) in terms of the strength of network externalities for observing the adoption of a business model that comprises the offering of both proprietary and OS solutions by the entrant (i.e., hybrid business model). Then, we highlight that, if a hybrid business model is the choice, the degree of openness chosen in equilibrium increases along with both the strength of the network externalities and the competitive advantage of the incumbent. This result holds indifferently whether the software start-up is modelled as a price-setter or a price-taker. An empirical test run on a sample of European start-ups in the software industry supports these theoretical predictions. Copyright Springer Science+Business Media New York 2014

Keywords: Open source; Software start-ups; Degree of openness; Network externalities; Incumbent’s competitive advantage; L13; L17; L86 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s10614-013-9385-8 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:44:y:2014:i:2:p:175-200

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-013-9385-8

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().