Innovation, Openness, and Platform Control

Geoffrey Parker () and Marshall Van Alstyne ()
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Geoffrey Parker: Thayer School of Engineering, Dartmouth College, Hanover, New Hampshire 03755
Marshall Van Alstyne: Questrom School of Business, Boston University, Boston, Massachusetts 02215

Management Science, 2018, vol. 64, issue 7, 3015-3032

Abstract: Suppose that a firm in charge of a business ecosystem 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 develop a sequential innovation model that addresses the trade-offs inherent in these two decisions: (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 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 developers can build. Our model allows us to characterize the optimal levels of openness and of intellectual property (IP) duration in a platform ecosystem. We use standard Cobb–Douglas production technologies to derive our results. These findings can inform innovation strategy, choice of organizational form, IP noncompete decisions, and regulation policy.

Keywords: open innovation; sequential innovation; platforms; R&D spillovers; intellectual property; bundling; two-sided networks; two-sided markets; standards setting organizations (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (71)

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