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Innovation, Openness, and Platform Control

Author

Listed:
  • Geoffrey Parker

    (Thayer School of Engineering, Dartmouth College, Hanover, New Hampshire 03755)

  • Marshall Van Alstyne

    (Questrom School of Business, Boston University, Boston, Massachusetts 02215)

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.

Suggested Citation

  • Geoffrey Parker & Marshall Van Alstyne, 2018. "Innovation, Openness, and Platform Control," Management Science, INFORMS, vol. 64(7), pages 3015-3032, July.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:7:p:3015-3032
    DOI: 10.1287/mnsc.2017.2757
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    References listed on IDEAS

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