COMPETITION OF HARDWARE MANUFACTURERS, PROPRIETARY AND FREE SOFTWARE DEVELOPERS, AND PIRATES

The aim of this paper is to explain the structure of the market of hardware, proprietary and free software, and illegal copies of proprietary software. We propose a simple model of market interactions between hardware vendors, proprietary and free software developers, and pirates. We consider two hardware suppliers, Intel and AMD, both maximize profits forming a traditional duopoly, while proprietary software supplier, Microsoft, and the community of free software developers, Linux team, form a mixed duopoly, in which only the first party maximizes its profit. We assume that there are also pirates maximizing profits of selling illegal copies of proprietary software. It is shown that the price of the most expensive product (Microsoft Windows operating system) at the Cournot equilibrium is approximately ten times greater than the price of the cheapest product (AMD CPU), illegal copies of proprietary software are two times cheaper than legal copies of the same software, the profit of Microsoft is approximately five times greater than the profit of Intel, and approximately twenty times greater than the profit of AMD, and integrated profit of pirates is 26% greater than the profit of Intel. The market share of Intel is two times greater than the market share of AMD, and 33% greater than the market share of Microsoft Windows; the market share of Microsoft Windows is 33% greater than the market share of Microsoft Office; the market shares of Microsoft Windows and Microsoft Office illegal copies are two times smaller than the market shares of corresponding legal copies.