Innovation, Openness, and Platform Control

Abstract:     
In platform markets, with applications ecosystems and sequential innovation, we examine the decisions to open the platform and to bundle downstream products. We find that competition among application developers reduces openness and innovation while competition among platforms has the opposite effect. Developers can also be better off producing for proprietary platforms as opposed to completely open standards. Although a social planner would open a platform sooner and to a greater degree than would a private platform sponsor, a platform sponsor's ability to control downstream innovation gives it reason to behave more like a social planner than it otherwise would. However, if platforms are to perform this role, platform sponsors need longer duration rights than application developers. Results can inform antitrust and intellectual property regulation, innovation and competition policy, and intellectual property strategy.

Keywords: Sequential Innovation, Platforms, Copyright and Patent Length, Technological Uncertainty, Information Systems, Network Effects, Network Externalities

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

Working Paper Series