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Dual licensing strategy with open source competition

Author

Listed:
  • Torre Dominique

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Eric Darmon

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

Software firms that produce and sell proprietary software can use dual licensing (DL) strategies,that is, they can distribute their products under different (proprietary, OS, e.g., open source)licensing terms. We investigate the relevance and impacts of such distribution strategies in thepresence of an OS software competitor. We determine the conditions for this strategy to be profitablefor the software firm, and its impact on price, market share, and welfare. We show that aDL strategy can be used to crowd the OS software out of the market. This strategy then is profitablefor the software firm only if the spillovers coming from the hybrid software (i.e., second distributionlaunched by the software firm) are sufficiently high and result in both a higher price anda lower market share for the proprietary software. We also consider a situation where the introductionof DL leads to a market shared between the firm's software and the OS competitor. Inthis situation, the profitability of the DL strategy depends also on the degree of compatibilitybetween the proprietary software and its OS competitor. We show also that this situation cangenerate conflicts of interests between proprietary software vendors and users, resulting in suboptimaloutcomes.

Suggested Citation

  • Torre Dominique & Eric Darmon, 2016. "Dual licensing strategy with open source competition," Post-Print halshs-01576625, HAL.
    • Handle: RePEc:hal:journl:halshs-01576625
    DOI: 10.1002/mde.2847
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    Cited by:

    1. Chung‐Hui Chou, 2021. "Could coexistence of open‐source and proprietary platforms be an equilibrium outcome?," Manchester School, University of Manchester, vol. 89(3), pages 297-309, June.
    2. Chung‐Hui Chou, 2023. "Does possessing an installed base induce a proprietary software producer to act aggressively or mildly in pricing and intrinsic quality provision?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(2), pages 133-143, May.

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