The Host's Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods

79 Pages Posted: 5 Oct 2010 Last revised: 9 Jan 2016

See all articles by Jonathan Barnett

Jonathan Barnett

University of Southern California Gould School of Law

Date Written: 2011

Abstract

Voluntary forfeiture of intellectual assets – often, exceptionally valuable assets – is surprisingly widespread in information technology markets. A simple economic rationale can account for these practices. By giving away access to core technologies, a platform holder commits against expropriating (and thereby induces) user investments that support platform value. To generate revenues that cover development and maintenance costs, the platform holder must regulate access to other goods and services within the total consumption bundle. The tradeoff between forfeiting access (to induce adoption) and regulating access (to recover costs) anticipates the substantial convergence of open and closed innovation models. Organizational patterns in the software and operating system markets are consistent with this hypothesis: open and closed structures substantially converge across a broad range of historical and contemporary settings and commercial and noncommercial environments. In particular, I show that (i) proprietary firms have formed nonprofit consortia and adopted open licensing strategies in order to develop and promote operating systems for the smartphone market, and (ii) leading “open source” software projects are now primarily funded and substantially governed and staffed by corporate sponsors.

Suggested Citation

Barnett, Jonathan, The Host's Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods (2011). 124 Harvard Law Review 1861 (2011); USC CLEO Research Paper No. C10-15; USC Law Legal Studies Paper No. 10-18. Available at SSRN: https://ssrn.com/abstract=1687351

Jonathan Barnett (Contact Author)

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

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