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The optimal licensing strategy and commission in a software platform ecosystem with software content upgrades

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  • Ning Wei
  • Junpeng Guo

Abstract

A licensing commission policy can be used as a tool to orchestrate an ecosystem with complementary developers. For instance, Apple attempts to take advantage of a licensing‐related commission strategy. However, its economic mechanism is seldom discussed. Therefore, this study developed a framework of a platform ecosystem in order to analyze the economics of the licensing‐related commission strategy and the optimal licensing choice with the software function and content upgrade in a monopoly/duopoly market setting. We find that the commission rate serves not only as a value transfer instrument but also as a value‐creation incentive machine for the ecosystem with third‐party vendors. Further, by considering the above factors, the platform would use a win‐win commission rate that benefits both parties. We also find that the differential commission rate has a stronger extraction effect, but it may not result in a vendor‐friendly commission rate and may hurt the vendor's value creation incentive and social welfare. Furthermore, we investigate the equilibrium in the market with competing vendors.

Suggested Citation

  • Ning Wei & Junpeng Guo, 2023. "The optimal licensing strategy and commission in a software platform ecosystem with software content upgrades," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(6), pages 3367-3383, September.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:6:p:3367-3383
    DOI: 10.1002/mde.3884
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