The case for open-source software

Amid the sea of software giants with costly products, open-source software (OSS) is gaining popularity. Such software operates under specific licensing agreements – e.g. General Public License (GPL) and European Union Public Licence (EUPL) – calling for careful economic considerations to encourage innovation and development. The EU-funded ECONOPENSOURCE (Economics of open source) project studied the economics of innovation through open source development.

Proposing a new method to investigate open source innovation, the project looked at how innovators act and what licensing they choose, if any. It also looked at social welfare gains emerging from an open source model versus a private investment model, comparing as well competition between both. In addition, the project team considered whether open source production could overthrow proprietary production, and whether it should be subsidised.

After closely examining the competition dynamics between two firms, one proprietary firm and one open source firm, the project team proposed a solution to the dynamic duopolistic competition model. It identified whether open source production can beat the proprietary firm in the long run and outlined the conditions necessary to bring this about.

One important finding in this respect is that there cannot be one single policy recommendation or answer regarding open source production. In some cases it may be beneficial for increasing the welfare of people, and in other cases it may not be as beneficial.

On a more legal and cross-European level, in the previous decade the EU outlined many strategies regarding OSS, approving the EUPL in 2009. This represents a major achievement in furthering integrated technology in Europe, encouraging innovation in OSS. The project's results will help enlighten the debate on OSS, promote cost effectiveness in developing and using software, and continue advancing research, development and innovation in the field.