Matthias Bärwolff Linux and Windows - A Case of Market Failure ? Bournemouth University 2001 – School of Finance and Law –

The topic of this dissertation is economic efficiency in the consumer market for operating systems, which is characterised by rapid and dynamic innovation, a decisive interrelation with hardware and application programs, network externalities, and a crucial impact of intellectual property rights. In addition to desk based research, three research studies were conducted, largely in a positivist framework, aimed at exploring the particular characteristics of the market, especially information levels regarding Windows and Linux, and availability of the systems. A focus group was conducted in order to establish which of the systems is the technically superior one. The results indicate considerable information imperfections on the consumers’ part, as well as inefficiencies stemming from network externalities and the legal framework established by current intellectual property rights law. Further research into the phenomenon is needed, especially in the context of information economics perspectives, as well as psychological and sociological frameworks. State intervention appears to be a feasible remedy in correcting some of the principal inefficiencies stemming from the monopoly power that Microsoft derives from its intellectual property and contractual rights.