Crowding-in of complementary contributions to public goods: Firm investment into open source software

We present a fairly general model in which firms are competitors in a commercial market segment and can invest into a complementary public good like open source software. We show that, contrary to standard predictions, additional contribution to the public good by the government or a new market entrant can lead to higher investments of all incumbent firms, that is, a crowding-in effect. This result occurs if the investment cost function is superadditive. We find that government contribution leads to larger crowding-in effects than subsidizing market entry if the price elasticity of demand with respect to the private good is large relative to the one with respect to the public good. Our results are robust to extensions in the timing and the mode of competition.