<p>This paper constructs a Hotelling differentiation model to investigate the equilibrium outcome of compatibility levels between open-source software (OSS) and proprietary software (PS) in which PS has higher intrinsic quality as well as an installed base that is due to its pioneering the market. We consider compatibility as a continuous unilateral decision. The PS producer maximizes its profits, and the OSS developer instead maximizes its market share. The main contribution of our research is showing that if PS has mildly or moderately superior intrinsic quality, then the OSS developer makes fully compatible products, whereas the PS producer could make partially compatible or incompatible products. This result offers a rationale for asymmetric and partial compatibility in software markets such as the document processing one. On the other hand, the PS producer would deter the entry of OSS by making incompatible products if its products have greatly superior intrinsic quality. We also find that PS could gain a smaller market share despite owning higher intrinsic quality and an installed base. Furthermore, although increasing the compatibility level with OSS may provide more network benefits to PS buyers, it could conversely reduce the number of PS buyers. Finally, we show that the presence of OSS could improve consumer surplus but makes the PS producer less motivated to invest in intrinsic quality.</p>