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Licensing and Competition for Services in Open Source Software

Author

Listed:
  • Terrence August

    (Rady School of Management, University of California, San Diego, La Jolla, California 92093)

  • Hyoduk Shin

    (Rady School of Management, University of California, San Diego, La Jolla, California 92093)

  • Tunay I. Tunca

    (Smith School of Business, University of Maryland, College Park, Maryland 20742)

Abstract

Open source software is becoming increasingly prominent, and the economic structure of open-source development is changing. In recent years, firms motivated by revenues from software services markets have become the primary contributors to open-source development. In this paper we study the role of services in open source software development and explore the choice between open source and proprietary software. Specifically, our economic model jointly analyzes the investment and pricing decisions of the originators of software and of subsequent open-source contributors.We find that if a contributor is efficient in software development, the originator should adopt an open-source strategy, allowing the contributor to offer higher total quality and capture the higher end of the market while the originator focuses on providing software services to lower end consumers. Conversely, if the contributor is not efficient in development, the originator should adopt a proprietary software development strategy, gaining revenue from software sales and squeezing the contributor out of the services market. In certain cases an increase in originator development efficiency can result in increased contributor profits. Finally, we find that, somewhat counterintuitively, an increase in contributor development efficiency can reduce overall social welfare.

Suggested Citation

  • Terrence August & Hyoduk Shin & Tunay I. Tunca, 2013. "Licensing and Competition for Services in Open Source Software," Information Systems Research, INFORMS, vol. 24(4), pages 1068-1086, December.
    • Handle: RePEc:inm:orisre:v:24:y:2013:i:4:p:1068-1086
    DOI: 10.1287/isre.2013.0486
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    References listed on IDEAS

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    Cited by:

    1. Hagiu, Andrei & Jullien, Bruno & Wright, Julian, 2018. "Creating platforms by hosting rivals," TSE Working Papers 18-970, Toulouse School of Economics (TSE), revised Mar 2019.
    2. Xing Gao, 2020. "Open Source or Closed Source? A Competitive Analysis with Software Security," Decision Analysis, INFORMS, vol. 17(1), pages 56-73, March.
    3. Terrence August & Hyoduk Shin & Tunay I. Tunca, 2018. "Generating Value Through Open Source: Software Service Market Regulation and Licensing Policy," Information Systems Research, INFORMS, vol. 29(1), pages 186-205, March.
    4. Terrence August & Wei Chen & Kevin Zhu, 2021. "Competition Among Proprietary and Open-Source Software Firms: The Role of Licensing in Strategic Contribution," Management Science, INFORMS, vol. 67(5), pages 3041-3066, May.
    5. Andrei Hagiu & Bruno Jullien & Julian Wright, 2020. "Creating Platforms by Hosting Rivals," Management Science, INFORMS, vol. 66(7), pages 3234-3248, July.
    6. Nie, Jiajia & Zhong, Ling & Li, Gendao & Cao, Kuo, 2022. "Piracy as an entry deterrence strategy in software market," European Journal of Operational Research, Elsevier, vol. 298(2), pages 560-572.
    7. Zha, Yong & Wu, Xiangxiang & Liu, Haonan & Yu, Yugang, 2023. "Impact of a Platform Developer's Entry on the Device Manufacturer with Different Power Structures and Revenue Models," Omega, Elsevier, vol. 115(C).
    8. Zach Zhizhong Zhou & Vidyanand Choudhary, 2022. "Impact of Competition from Open Source Software on Proprietary Software," Production and Operations Management, Production and Operations Management Society, vol. 31(2), pages 731-742, February.
    9. Wu, Xiangxiang & Zha, Yong & Ling, Liuyi & Yu, Yugang, 2022. "Competing OEMs’ responses to a developer's services installation and strategic update of platform quality," European Journal of Operational Research, Elsevier, vol. 297(2), pages 545-559.

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