Abstract

This article describes the potential impact that free (i.e., open source) software can have on an existing commercial software market. A model for the software market is constructed in terms of autonomous agents, which represent the users, the companies, and the free software providers. The model specifies a reservation price for each user agent and develops a gradient learning strategy for revenue-maximizing company agents. Simulations explore parameters such as the demand distribution, and the relative importance of market share, advertising and random effects in product visibility. Results from the case without free software show a prevalence of monopolies, which is consistent with other studies of high-technology market economics. The effects of free software are not uniform, but are highly parameter dependent. A “capture region” is found in which free software eventually dominates the market.