Windows vs. Linux: Some Explorations into the Economics of Free Software

The article presents an economic analysis of Free Software. We insist on the role played by Public Licenses, which implement a very subtle and efficient way of dealing with positive externalities associated with creativity, in providing the software industry with such a new development methodology and business model, now already challenging some of Microsoft's main products. To test our argument, we turn to a stochastic interaction model to study the current competition between Linux and Windows NT/2000 in the market for Operating Systems, as this model allows us to deal with both local and global positive externalities. Its results enlighten the existence of different diffusion regimes depending on producer strategies, the main question having to do with the redistribution of positive external economies associated with diffusion of new technologies, therefore confirming our suggestion that Free Software might be a superior economic model than proprietary software.

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