nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒10‒22
two papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Does Third Degree Price Discrimination Reduce Social Welfare? By Debashis Pal; Victor Kaftal
  2. A Strategic Analysis of Competition Between Open Source and Proprietary Software By Ravi Sen

  1. By: Debashis Pal; Victor Kaftal
    Abstract: We analyze the welfare impact of monopolistic third degree price discrimination when all markets are not necessarily served by uniform pricing. We consider n markets with linear demand curves. Each demand is characterized by the price intercept of the demand curve and by the size of the market as measured by the area under the demand curve. Based on these two exogenous parameters, we (i) establish the necessary and su¢ cient conditions to determine the number of markets to be served under uniform pricing, (ii) derive the necessary and su¢ cient conditions to determine the direction of the welfare change under third degree price discrimination, (iii) determine minimally su¢ cient conditions for all markets being served under uniform pricing, involving either the market sizes or the price intercepts of demands alone, and (iv) derive minimally su¢ cient conditions, involving market sizes alone, for third degree price discrimination to increase welfare when all markets are not served by uniform pricing.
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:cin:ucecwp:2005-03&r=ind
  2. By: Ravi Sen (Texas A&M University)
    Abstract: This paper takes an analytical approach to identify the conditions under which freely available open source software (OSS) and/or the commercial version of the same (OSS-SS) will adversely affect the market position of proprietary software (PS), and suggests some strategic steps that the PS vendor can take in order to compete successfully. For example, we find that in software markets characterized by low network benefits and OSS-SS with low usability (relative to PS), open source software will have the dominant market share. Interestingly, in these markets the profitability of PS vendor, when the OSS-SS is also present in the market, is higher than its profitability, when the OSS-SS is absent from the software market. In software markets characterized by low network benefits and OSS-SS with high usability, PS will dominate the market in terms of market share. It can maintain its domination by actively participating in OSS projects and ensuring that OSS is as usable as OSS- SS. In software markets characterized by high network benefits and OSS- SS with low usability (relative to PS), we should expect to see the open source software dominating this market in future. However, PS vendors can effectively compete by ensuring that PS is more usable than OSS-SS and OSS. Finally, in software markets characterized by high network benefits and OSS-SS with high usability, PS faces the maximum threat since open source software will dominate the market in terms of market share. Furthermore, the equilibrium price that the PS can charge will not result in positive profits, thus ensuring the exit of PS vendors from the software markets. However, we have yet to see a commercial version of open source in this software category that is as usable as the PS. Therefore, we have not observed the exit of PS vendors from this software segment.
    Keywords: Open source software, software market, software competition, economics of open source, commercial open source, FLOSS.
    JEL: L
    Date: 2005–10–17
    URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0510004&r=ind

This nep-ind issue is ©2005 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.