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Open Source, Dual Licensing and Software Competition

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  • Éric Darmon

    (CREM UMR CNRS 6211, University of Rennes 1, France)

  • Dominique TORRE

    (GREDEG CNRS, Universite Nice Sophia-Antipolis, France)

Abstract

To distribute software, commercial vendors of proprietary software have the opportunity to use some dual licensing (DL) strategy i.e. to provide their software under two different licensing terms (proprietary and open source). We investigate the relevance and impacts of this distribution strategy in the presence of an incumbent open source software competitor. We determine the conditions for this strategy to be pro table for the commercial rm and its impact on price, market shares and welfare. We show that dual licensing may be used as a complement for proprietary software when development spillovers are large. We examine how, in this case, a dual licensing strategy can be used to exclude the open source software from the market and how this is compatible with higher price and lower market share for the proprietary distribution. This situation can also generate conflicts of interests between proprietary software and users resulting in sub-optimal outcomes. Finally, our analysis reveals the key role played by development spillovers and software compatibility for the DL decision.

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Bibliographic Info

Paper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 201405.

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Date of creation: Mar 2014
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Handle: RePEc:tut:cremwp:201405

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Keywords: dual licensing; hybrid business model; software distribution strategy; open source spillover;

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References

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  1. Josh Lerner & Jean Tirole, 2004. "The Economics of Technology Sharing: Open Source and Beyond," NBER Working Papers 10956, National Bureau of Economic Research, Inc.
  2. Comino, Stefano & Manenti, Fabio M., 2011. "Dual licensing in open source software markets," Information Economics and Policy, Elsevier, vol. 23(3), pages 234-242.
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  12. Ramon Casadesus-Masanell & Gaston Llanes, 2009. "Mixed Source," Working Papers 09-06, NET Institute, revised Sep 2009.
  13. Suzanne Scotchmer, 2010. "Openness, Open Source, and the Veil of Ignorance," American Economic Review, American Economic Association, vol. 100(2), pages 165-71, May.
  14. Dalle, Jean-Michel & Jullien, Nicolas, 2003. "'Libre' software: turning fads into institutions?," Research Policy, Elsevier, vol. 32(1), pages 1-11, January.
  15. Haruvy, Ernan & Prasad, Ashutosh, 2005. "Freeware as a competitive deterrent," Information Economics and Policy, Elsevier, vol. 17(4), pages 513-534, October.
  16. Chaim Fershtman & Neil Gandal, 2011. "Direct and indirect knowledge spillovers: the “social network” of open‐source projects," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 70-91, 03.
  17. Éric Darmon & Thomas Le texier & Dominique Torre, 2011. "Proprietary or open source software? Winner-takes-all competition, partial adoption and efficiency," Revue d'économie industrielle, De Boeck Université, vol. 0(4), pages 109-140.
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