Jeevan Jaisingh

The Impact of Open Source Software on the Strategic Choices of Firms Developing Proprietary Software

Open source software (OSS) is now posing significant competition to proprietary or closed source software (CSS) in several software markets. In this paper, we characterize the response of a firm developing CSS (where the CSS is a revenue earner) to the presence of an OSS in its market. In particular, we look at the firms choice of resource investments to improve quality and the firms pricing decisions. We are primarily motivated by the following questions: Would a firm producing CSS produce higher-quality software when it faces competition from an OSS than when there is no OSS in its market? Would there be a change in the firms response if the CSS faced competition from another CSS in addition to competition from the OSS? We show that the firm produces lower-quality CSS when it faces competition from an OSS than when it does not. Also, the quality of the CSS decreases as the quality of the OSS increases. This result holds true even if we consider network effects. When we consider competition from another CSS, in addition to competition from the OSS, then the quality of the CSS could increase or decrease as the quality of the OSS increases. The change in quality depends on how closely substitutable the two CSS are. We also extend our base model to consider (1) competition for resources, (2) uncertainty in resources available to the OSS, and (3) uncertainty about the software development process.

Impact of piracy on innovation at software firms and implications for piracy policy

In this paper, we look at how innovation in the presence of piracy is affected by the policy choice of alliances such as the Business Software Alliance (BSA). Surprisingly, we find that a stricter piracy policy, that increases the perceived cost to using pirated software for end-users, may in some cases lead to an increase in piracy, and a decrease in product quality. The implication for a social planner is that in a monopoly market, an increase in the policy variable, could act as a disincentive for innovation. In a competitive market an increase in the policy variable provides an incentive for innovation.

Privacy and pricing personal information

Abstract The issues we address here are – How should a firm (e.g. Internet service provider (ISP)) that is capable of collecting personal information (browsing information, purchase history, etc.) about consumers, price its service, given that consumers vary in their valuation for privacy, and also vary in terms of the value of their personal information to a third party (firms that need consumer information)? Should the firm have a blanket policy of never collecting, or a policy of always collecting and revealing information? Surprisingly we find that in some cases the collector of information may be no worse off in the asymmetric information case than in the full information case. The paper provides a justification for the strategy of some firms such as ISP’s which never collect information and also for the strategy of other firms, like grocery stores that do. We also find that it is non-optimal for the firm to design contracts where the consumer can choose an intermediate level of privacy.

Piracy on File Sharing Networks: Strategies for Recording Companies

In this paper we study the impact of selling music as downloads, on piracy, and the strategies recording companies should adopt to increase profits. We find that total music sales and profit of firm is higher, and total piracy (demand on file sharing network) is lower, when the firm sells a downloadable version. We look at the firms optimal choice of Digital Rights Management (DRM) protection, and find that revenue decreases with increased protection, and so it is optimal for the firm not to employ any DRM, in the absence of network effects. Listening to music or watching video protected by DRM is cumbersome to users. They have to download license files, there are restrictions on the number of times the file can be copied, and restrictions on the type of devices that can play the file. As a result there is a disutility to the legal consumer, because of which the firm charges lower prices. Loss in revenue due to decreased prices cannot be compensated by the increase in demand, and hence revenue decreases with higher protection. When network effects (NE) is high, and a nominal search cost is above a certain threshold, then non-zero protection becomes optimal. This result is exactly the opposite of what was found in previous research (Conner and Rumelt 1991), where protection was found to be optimal in the absence of NE, and zero protection was optimal if NE is high enough.

Risk of using pirated software and its impact on software protection strategies

The software protection strategy of software developer and the inherent risk to end user in using pirated software are two major factors that affect a users decision on whether to purchase or pirate a software product. This paper analyzes the optimal protection strategy for software developer in horizontally and vertically differentiated markets. We find that the implementation cost of software protection constitutes the primary factor for software developers to determine their software protection strategies. However, in a vertically differentiated market, the lower quality product should always adopt a non-protection strategy, regardless of the protection implementation cost. In other cases, protection would only be optimal if the protection implementation cost to the software developer is relatively small. These findings are consistent with anecdotal evidence.

Strategic Response of an Incumbent Firm in IT Intensive Industry: Few Reflections

In this paper, an attempt has been made to look at the strategic options available for an incumbent firm in an information technology intensive industry. The traditional Stackleberg Leader Follower model fails to hold in this industry since costs decline substantially over time, and the incumbent firm cannot maintain a dominant position in the industry. This paper makes an attempt to look at few strategic options available for an incumbent firm under these circumstances.

Pricing bundled information goods

This paper contributes to the bundling literature by presenting a model to study bundling strategies for firms when the firm produces both information goods and a comparable physical world good. Two models are considered 1) Where the firm produces only information goods and 2) Where the firm produces a comparable physical good, apart from the information goods. Results suggest that a profit-maximizing firm should offer only the largest bundle, containing all the information goods. Profits for bundles containing substitute goods (sub-additive valuations), were found to be lower than the profits for bundles containing information goods whose valuations added up, when bundled together. Total profits decrease with an increase in marginal cost of the physical good. Also profits were found to increase (decrease) with an increase in the existing demand for the physical good, when the marginal cost of the physical good was low (high).