Abstract

http://ssrn.com/abstract=1079712
 
 

Citations (13)



 


 



Innovation, Openness, and Platform Control


Geoffrey Parker


Tulane University - A.B. Freeman School of Business

Marshall W. Van Alstyne


Boston University - Department of Management Information Systems; Massachusetts Institute of Technology (MIT) - Sloan School

December 3, 2013


Abstract:     
Consider that a firm in charge of a business platform is a firm in charge of a microeconomy. To achieve the highest growth rate, how open should that economy be? To encourage third-party developers, how long should their intellectual property interests last? We address these questions through a sequential innovation model that balances two sets of tradeoffs. (i) Closing the platform increases the sponsor's ability to charge for access, while opening the platform increases developer ability to build upon it. (ii) The longer third-party developers retain property rights to their innovations, the higher the royalties they and the sponsor earn, but the sooner those developers rights expire, the sooner their innovations become a public good upon which other ecosystem developers can build. Our model allows us to characterize the optimal levels of openness and of IP duration in a platform ecosystem. We also model the relative profit potential of a sponsoring firm's decision to vertically integrate into downstream production as a closed hierarchy or to organize itself as a platform for open innovation. We use standard tools of Cobb-Douglas production and two-sided networks to derive our results. These findings can inform innovation strategy, choice of organizational form, intellectual property law, and management of competition.

Number of Pages in PDF File: 44

Keywords: Open Innovation, Sequential Innovation, Two-Sided Markets, Two Sided Networks, Platforms, Patent Length, Network Effects, Externalities, R&D Spillovers, Bundling, Vertical Integration

JEL Classification: L00, L11, L5, O3, O31, O32

working papers series


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Date posted: January 2, 2008 ; Last revised: July 1, 2014

Suggested Citation

Parker, Geoffrey and Van Alstyne, Marshall W., Innovation, Openness, and Platform Control (December 3, 2013). Available at SSRN: http://ssrn.com/abstract=1079712 or http://dx.doi.org/10.2139/ssrn.1079712

Contact Information

Geoffrey Parker (Contact Author)
Tulane University - A.B. Freeman School of Business ( email )
7 McAlister Drive
New Orleans, LA 70118
United States
504-865-5000 (Phone)
504-865-6751 (Fax)
HOME PAGE: http://ggparker.net
Marshall W. Van Alstyne
Boston University - Department of Management Information Systems ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
617-358-3571 (Phone)
HOME PAGE: http://smgapps.bu.edu/mgmt_new/profiles/VanAlstyneMarshall.html
Massachusetts Institute of Technology (MIT) - Sloan School ( email )
Center for Digital Business
5 Cambridge Center - NE25, 7th Floor
Cambridge, MA 02142
United States
617-253-0768 (Phone)
HOME PAGE: http://web.mit.edu/marshall/www/home.html
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