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Open Source, Dual Licensing and Software Competition

  • Éric Darmon

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

  • Dominique Torre

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

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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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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  1. Bonaccorsi, Andrea & Rossi, Cristina, 2003. "Why Open Source software can succeed," Research Policy, Elsevier, vol. 32(7), pages 1243-1258, July.
  2. Suzanne Scotchmer, 2010. "Openness, Open Source, and the Veil of Ignorance," American Economic Review, American Economic Association, vol. 100(2), pages 165-71, May.
  3. Eric von Hippel, 2007. "Horizontal innovation networks—by and for users," Industrial and Corporate Change, Oxford University Press, vol. 16(2), pages 293-315, April.
  4. Ramon Casadesus-Masanell & Pankaj Ghemawat, 2006. "Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows," Management Science, INFORMS, vol. 52(7), pages 1072-1084, July.
  5. Stefano Comino & Fabio M. Manenti, 2007. "Dual licensing in open source software markets," Department of Economics Working Papers 0718, Department of Economics, University of Trento, Italia.
  6. Nicholas Economides & Evangelos Katsamakas, 2004. "Two-sided competition of proprietary vs. open source technology platforms and the implications for the software industry," Working Papers 04-22, NET Institute, revised Aug 2004.
  7. Josh Lerner & Jean Tirole, 2005. "The Economics of Technology Sharing: Open Source and Beyond," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 99-120, Spring.
  8. Vineet Kumar & Brett R. Gordon & Kannan Srinivasan, 2011. "Competitive Strategy for Open Source Software," Marketing Science, INFORMS, vol. 30(6), pages 1066-1078, November.
  9. Ashish Arora & Farasat A. S. Bokhari, 2007. "OPEN VERSUS CLOSED FIRMS AND THE DYNAMICS OF INDUSTRY EVOLUTION -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 55(3), pages 499-527, 09.
  10. Ramon Casadesus-Masanell & Gastón Llanes, 2011. "Mixed Source," Management Science, INFORMS, vol. 57(7), pages 1212-1230, July.
  11. Llanes, Gastón & de Elejalde, Ramiro, 2013. "Industry equilibrium with open-source and proprietary firms," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 36-49.
  12. Haruvy, Ernan & Prasad, Ashutosh, 2005. "Freeware as a competitive deterrent," Information Economics and Policy, Elsevier, vol. 17(4), pages 513-534, October.
  13. Dalle, Jean-Michel & Jullien, Nicolas, 2003. "'Libre' software: turning fads into institutions?," Research Policy, Elsevier, vol. 32(1), pages 1-11, January.
  14. 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.
  15. repec:cai:reidbu:rei_136_0109 is not listed on IDEAS
  16. Rolandsson, Bertil & Bergquist, Magnus & Ljungberg, Jan, 2011. "Open source in the firm: Opening up professional practices of software development," Research Policy, Elsevier, vol. 40(4), pages 576-587, May.
  17. Lanzi, Diego, 2009. "Competition and open source with perfect software compatibility," Information Economics and Policy, Elsevier, vol. 21(3), pages 192-200, August.
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