The Role of the Proprietary Sector in the Supply and Demand of Open Source Software: Implications for Government Intervention in

the Software Market

Corinne SauerJerusalem Institute for Market Studies

 Robert M. Sauer

University of SouthamptonJerusalem Institute for Market Studies

Main findings

1. The supply of OS programmers is highly dependent on the promise of future returns in the proprietary software (PS) sector.

2. Increasingly, commercial firms are relying on OS products to produce software that can be sold for a profit

3. The dependence of OS supply and demand on the PS sector suggests that there may be an optimal mix of these two sectors in the software market.

The Supply of OS

1. Signaling effect of Tirole and Lerner (2002)

2. OS projects are very favorable for signaling one’s programming skills.

3. Good developers are attracted to high-profile innovative projects (Giuri etal. (2004)

Demand of OS Software

1. Total Cost of Ownership (dependant on salaries)

2. Complement Hardware, Services and Software

Conclusion

1. OS supply and demand is highly dependent on the proprietary software sector

2. a government-led tipping of the market in favor of open source, could decrease future supply and demand for OS.