Impact of Protection Level on Vertically-Differentiated Two-Sided Software Platforms

Abstract

This paper studies the impact of software protection level on software platforms and customers’ responses to different levels of protection. This study models the interplay between users, developers and platforms, and the impact of quality degradation in the presence and absence of competitive platforms. All price structures are affected by protection level and quality degradation level for pirated copies of software. Customers, developers, and platform reaction to the protection and quality degradation levels can be contradictory, because an increase in those parameters may benefit one side, while hindering another. The results confirm that full protection against piracy is not always the best strategy in multisided platforms, but the impact of piracy changes under different scenarios.The results show that decisions regarding optimal security strategies should be taken in a systematic manner by incorporating the perspectives of all involved parties and the important factors extracted from the market within which the platform performs, such as monopoly or competition.