Investment Incentives in Open-Source and Proprietary Two-Sided Platforms
Harvard University - Strategy Unit
Pontificia Universidad Católica de Chile
September 6, 2013
Harvard Business School Strategy Unit Working Paper No. 12-114
We study incentives to invest in platform quality in open-source and proprietary two-sided platforms. Open platforms have open access, and developers invest to improve the platform. Proprietary platforms have closed access, and investment is done by the platform owner. We present five main results. First, open platforms may benefit from limited developer access. Second, an open platform may lead to higher investment than a proprietary platform. Third, opening one side of a proprietary platform may lower incentives to invest in platform quality. Fourth, the structure of access prices of the proprietary platform depends on (i) how changes in the number of developers affect the incentives to invest in the open platform, and (ii) how investment in the open platform affects the revenues of the proprietary platform. Finally, a proprietary platform may benefit from higher investment in the open platform. This result helps explain why the owner of a proprietary platform such as Microsoft has chosen to contribute to the development of Linux.
Number of Pages in PDF File: 29
Keywords: Two-Sided Markets, Platform Investment, Network Effects, Open-Source Software, Application Development, Complementarity
JEL Classification: O31, L17, D43
Date posted: July 10, 2012 ; Last revised: September 7, 2013
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