TY - JOUR
T1 - Competition among proprietary and open-source software firms
T2 - The role of licensing in strategic contribution
AU - August, Terrence
AU - Chen, Wei
AU - Zhu, Kevin
N1 - Funding Information:
History: Accepted by Chris Forman, information systems. Funding: This work was supported by National Science Foundation [Grant CNS-0954234]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2020.3674.
Publisher Copyright:
© 2020 INFORMS.
PY - 2021/5
Y1 - 2021/5
N2 - In enterprise software markets, firms are increasingly using services-based business models built on open-source software (OSS) to compete with established, proprietary software firms. Because third-party firms can also strategically contribute to OSS and compete in the services market, the nature of competition between OSS constituents and proprietary software firms can be complex. Moreover, their incentives are likely influenced by the licensing schemes that govern OSS. We study a three-player game and examine how open-source licensing affects competition among an open-source originator, an open-source contributor, and a proprietor competing in an enterprise software market. In this regard, we examine (1) how quality investments and prices are endogenously determined in equilibrium, (2) how license restrictiveness impacts equilibrium investments and the quality of offerings, and (3) how license restrictiveness affects consumer surplus and social welfare. Although some in the open-source community often advocate restrictive licenses such as theGNUGeneral Public License because it is not always in the best interest of the originator for the contributor to invest greater development effort, such licensing can actually be detrimental to both consumer surplus and social welfare when it exacerbates this incentive conflict. We find such an outcome in markets characterized by software providers with similar development capabilities yet cast in favor of the proprietor. In contrast, when these capabilities either become more dispersed or remain similar but tilt in favor of open source, a more restrictive license instead encourages greater effort from the OSS contributor, leads to higher OSS quality, and provides a larger societal benefit.
AB - In enterprise software markets, firms are increasingly using services-based business models built on open-source software (OSS) to compete with established, proprietary software firms. Because third-party firms can also strategically contribute to OSS and compete in the services market, the nature of competition between OSS constituents and proprietary software firms can be complex. Moreover, their incentives are likely influenced by the licensing schemes that govern OSS. We study a three-player game and examine how open-source licensing affects competition among an open-source originator, an open-source contributor, and a proprietor competing in an enterprise software market. In this regard, we examine (1) how quality investments and prices are endogenously determined in equilibrium, (2) how license restrictiveness impacts equilibrium investments and the quality of offerings, and (3) how license restrictiveness affects consumer surplus and social welfare. Although some in the open-source community often advocate restrictive licenses such as theGNUGeneral Public License because it is not always in the best interest of the originator for the contributor to invest greater development effort, such licensing can actually be detrimental to both consumer surplus and social welfare when it exacerbates this incentive conflict. We find such an outcome in markets characterized by software providers with similar development capabilities yet cast in favor of the proprietor. In contrast, when these capabilities either become more dispersed or remain similar but tilt in favor of open source, a more restrictive license instead encourages greater effort from the OSS contributor, leads to higher OSS quality, and provides a larger societal benefit.
KW - Co-creation
KW - Collaborative development
KW - Licensing
KW - Open-source software
KW - Product quality
KW - Software competition
KW - Software services market
KW - Strategic contributions to open-source software
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U2 - 10.1287/mnsc.2020.3674
DO - 10.1287/mnsc.2020.3674
M3 - Article
AN - SCOPUS:85106551183
SN - 0025-1909
VL - 67
SP - 3041
EP - 3066
JO - Management Science
JF - Management Science
IS - 5
ER -