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Open Source, Dual Licensing and Software Competition

Author

Listed:
  • Éric Darmon

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

  • Dominique Torre

    (GREDEG CNRS, Université 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 profitable for the commercial firm 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.

Suggested Citation

  • Éric Darmon & Dominique Torre, 2014. "Open Source, Dual Licensing and Software Competition," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201405, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  • Handle: RePEc:tut:cremwp:201405
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    File URL: https://crem-doc.univ-rennes1.fr/wp/2014/201405.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

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

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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