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Investment Incentives in Open‐Source and Proprietary Two‐Sided Platforms

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  • Ramon Casadesus‐Masanell
  • Gastón Llanes

Abstract

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 to explain why the owner of a proprietary platform such as Microsoft has chosen to contribute to the development of Linux.

Suggested Citation

  • Ramon Casadesus‐Masanell & Gastón Llanes, 2015. "Investment Incentives in Open‐Source and Proprietary Two‐Sided Platforms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(2), pages 306-324, June.
    • Handle: RePEc:bla:jemstr:v:24:y:2015:i:2:p:306-324
    DOI: 10.1111/jems.12089
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    4. Chung‐Hui Chou, 2021. "Could coexistence of open‐source and proprietary platforms be an equilibrium outcome?," Manchester School, University of Manchester, vol. 89(3), pages 297-309, June.
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    6. Ron Adner & Jianqing Chen & Feng Zhu, 2020. "Frenemies in Platform Markets: Heterogeneous Profit Foci as Drivers of Compatibility Decisions," Management Science, INFORMS, vol. 66(6), pages 2432-2451, June.
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    9. Ding, Rong & Ko, Chiu Yu & Shen, Bo, 2022. "Partial compatibility in two-sided markets: Equilibrium and welfare analysis," Economic Modelling, Elsevier, vol. 116(C).
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    11. Choi, Jay Pil & Jeon, Doh-Shin & KIM, Byung-Cheol, 2012. "Internet Interconnection and Network Neutrality," TSE Working Papers 12-355, Toulouse School of Economics (TSE).
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