Openness, Open Source, and the Veil of Ignorance
University of California - Department of Economics ; School of Law, University of California, Berkeley; National Bureau of Economic Research (NBER)
September 15, 2009
American Economic Association, 2010
Open source collaborations are increasingly among commercial firms whose interest is profit. Why would profit-motivated firms voluntarily share code? One reason is that cost reductions can outweigh increases in rivalry. This is especially persuasive when the contributors make complementary products. However, cost reductions do not explain why open source is a more profitable way of sharing than other forms of licensing. Why would firms use an inflexible contract like the GPL? I present a model that shows how open source licensing can lead to higher industrywide profit than would result if a first innovator could choose the most profitable license once it finds itself in the position of first innovator. From behind a veil of ignorance, that is, not knowing which firm will be first, open source licensing creates higher expected profit for the industry as a whole, and thus for each firm, than if first innovators were allowed to choose.
Number of Pages in PDF File: 6
Keywords: open source software, intellectual property, computer software, disclosure of intellectual property, computer software
JEL Classification: O3working papers series
Date posted: December 19, 2009 ; Last revised: May 11, 2010
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