Open source is a mystery to many, given that contributors give away their innovations and competitors can just scoop them up. One would thus think that an industry would either be proprietary or open source, but not both at the same time.
Gastón Llanes and Ramiro de Elejalde show that it is possible. The critical features are that the open and proprietary goods not be perfect substitutes and that open source firms need to sell for a price a complementary good to the open one. That does not seem to be very constraining, as they need this anyway to survive, even without competition from proprietary goods. A perfect example for this is the database management industry, where the free MySQL is doing very well despite Oracle and Microsoft SQL.
One consequence of this is that some industry associations that like to pretend they represent the whole industry should stop chasing those that support an open source model. The music industry seems to be a perfect example here.