Optimal Firm Contributions to Open Source Software

Abstract:  This paper examines open source software development in a competitive environment.  The quality of open source software improves over time based upon contributions by firms and users. A firm's decision to contribute is interesting because it also augments competitor's software quality in future periods subject to compatibility considerations with their existing software.  A differential game model is developed to understand why firms are increasingly involved in open source software development by determining the optimal contributions and software quality over time.  We obtain a closed-loop Nash equilibrium solution.  Examples are given to derive insights from this model.