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For more than a decade, the development of the software industry has evidenced new patterns of competition. Although some traditional proprietary closed source software (PS, henceforth) firms had been able to crowd other ones from their markets, they today have to deal with atypical software competitors such as open source software (OSS, henceforth) communities and piracy channels. OSS solutions have gained market share and often represent a relevant threat to PS products. For instance, in 2012, Apache led the market for web servers, with 61% of the total market share, while that of Microsoft was only 15%. In the market for mobile operating systems, the market share of Android amounts to 52% whereas that of Apple iOS is 35%. In terms of piracy, recent surveys estimate the rate of software piracy adoption at 42%. Putting OSS development and software piracy together, one could therefore think that competition intensity in the market for software is likely to increase. This would result in PS firms eventually losing market share, given that both OSS products and illegal software copies are most of time provided at zero price whereas PS firms charge positive license fees to their users. In our paper we explain why this is however not the case, by analyzing the strategic incentives of PS firms to manipulate software network externalities by providing compatible standards with OSS products and invest in copy protection features.
Theoretical literatures on OSS and digital piracy dealing with competition are already widely available…

Abstract

English

This paper analyzes the strategic incentives of a proprietary software (PS) firm to manipulate software copy protection in response to the diffusion of pirate proprietary software (PPS) copies, as well as software compatibility/incompatibility with an alternative open source software (OSS) solution. We show that the existence of software piracy enables the PS firm to achieve higher profits than when piracy is prevented. A key mechanism at work is that investing in software copy protection allows the PS firm to increase the price of its PS product. From a regulatory point of view, we find that software compatibility with the OSS solution is a necessary condition to achieve a welfare-improving equilibrium, whereas the welfare-enhancing feature of piracy is not always proved.
JEL classification: L11, L82, L86.

  • externalities
  • compatibility
  • copy protection
  • open source software
  • piracy
  • proprietary software
Français

Comment les firmes éditrices de logiciels propriétaires peuvent-elles prendre l’avantage sur les communautés open source ? Une autre histoire de piratage profitable

Cet article analyse les incitations stratégiques d’une firme éditrice de logiciels propriétaires (PS) à manipuler la protection de son produit face à la version logicielle piratée (PPS) ainsi que la compatibilité de son produit avec une solution logicielle open source alternative (OSS). Nous montrons que l’existence de l’activité pirate permet à la firme PS d’accroître son profit par rapport à une situation dans laquelle le piratage est bloqué. Un mécanisme clé en application est que la firme PS peut sélectionner sa stratégie de protection de sorte à accroître le prix de son produit PS. En matière de régulation des marchés, nous trouvons que le choix d’une stratégie de compatibilité face à la solution OSS est une condition nécessaire à l’obtention d’un équilibre socialement efficace, tandis que la propriété pro-sociale du piratage n’est pas systématiquement vérifiée.
Classification JEL : L11, L82, L86.

  • externalités
  • piratage
  • compatibilité
  • logiciel open source
  • logiciel propriétaire
  • protection anticopie

Outline

  1. 1. Introduction
  2. 2. The model
    1. 2.1. Software products and software providers
    2. 2.2. Software users
    3. 2.3. Market shares, network sizes and utility functions
  4. 3. Competition without piracy
  5. 4. Competition with piracy
    1. 4.1. Price subgame
      1. 4.1.1. PS-OSS incompatibility
      2. 4.1.2. PS-OSS compatibility
    3. 4.2. Protection subgame
    4. 4.3. Compatibility choice
  7. 5. Comparative analysis
    1. 5.1. Profits
    2. 5.2. Welfare
  9. 6. Conclusion
  10. 7. Appendix A. Derivation of the market equilibrium when piracy does not apply
    1. 7.1. PS-OSS incompatibility
    2. 7.2. PS-OSS compatibility
  12. 8. Appendix B. Proofs
  13. 9. Supplement to Proof of Lemma 1

Authors

Thomas Le Texier
Univ Rennes, CNRS, CREM—UMR6211, F-35000 Rennes, France

Corresponding author. Tel. +33(0)223233006; Fax. +33(0)223233509; thomas.letexier[at]univ-rennes1.fr
Mourad Zeroukhi
Univ Rennes, CNRS, CREM—UMR6211, F-35000 Rennes, France
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