Open Source, Dual Licensing and Software Competition

23 Pages Posted: 21 Mar 2014

See all articles by Eric Darmon

Eric Darmon

Centre de Recherche en Économie et Management (CREM)

Dominique Torre

Université Côte d'Azur, GREDEG, CNRS

Date Written: March 2, 2014

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.

Keywords: dual licensing, hybrid business model, software distribution strategy, open source, spillover

JEL Classification: D23, D42, L86

Suggested Citation

Darmon, Eric and Torre, Dominique, Open Source, Dual Licensing and Software Competition (March 2, 2014). Available at SSRN: https://ssrn.com/abstract=2411501 or http://dx.doi.org/10.2139/ssrn.2411501

Eric Darmon (Contact Author)

Centre de Recherche en Économie et Management (CREM) ( email )

7 place Hoche
Rennes, Bretagne 35065
France

Dominique Torre

Université Côte d'Azur, GREDEG, CNRS ( email )

250, rue Albert Einstein
Valbonne, 06560
France

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