Thursday, June 19, 2014
Eric Darmon (CREM UMR CNRS 6211, University of Rennes 1, France) and Dominique TORRE (GREDEG CNRS, Universite Nice Sophia-Antipolis, France) explore Open Source, Dual Licensing and Software Competition.
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.