Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows

Authors:
Ramon Casadesus-Masanell;Pankaj Ghemawat
Affiliations:
Harvard Business School, Boston, Massachusetts 02163 and Instituto de Estudios Superiores de Empresa, Avenue Pearson 21, Barcelona 08034, Spain;Harvard Business School, Boston, Massachusetts 02163 and Instituto de Estudios Superiores de Empresa, Avenue Pearson 21, Barcelona 08034, Spain
Venue:
Management Science
Year:
2006

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Abstract

This paper analyzes a dynamic mixed duopoly in which a profit-maximizing competitor interacts with a competitor that prices at zero (or marginal cost), with the cumulation of output affecting their relative positions over time. The modeling effort is motivated by interactions between Linux, an open source operating system, and Microsoft's Windows and consequently emphasizes demand-side learning effects that generate dynamic scale economies (or network externalities). Analytical characterizations of the equilibrium under such conditions are offered, and some comparative static and welfare effects are examined.