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Open Versus Closed Firms And The Dynamics Of Industry Evolution

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  • ASHISH ARORA
  • FARASAT A. S. BOKHARI

Abstract

We develop a model of industry evolution in which firms choose proprietary standards (closed firm) or adopt a common standard (open firm). A closed entrant can capture multiple profits whereas an open entrant faces lower entry barriers: The odds of closed entry (relative to open entry) decrease with price and eventually open entry becomes more likely. While initially closed firms have better survival because they can offset losses in one component with profits from another, the situation is reversed when prices fall below a threshold. These entry and exit dynamics can lead the industry away from its long run equilibrium.

Suggested Citation

  • Ashish Arora & Farasat A. S. Bokhari, 2007. "Open Versus Closed Firms And The Dynamics Of Industry Evolution," Journal of Industrial Economics, Wiley Blackwell, vol. 55(3), pages 499-527, September.
    • Handle: RePEc:bla:jindec:v:55:y:2007:i:3:p:499-527
    DOI: 10.1111/j.1467-6451.2007.00321.x
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    Cited by:

    1. Eric Darmon & Dominique Torre, 2010. "Open source, dual licensing and software compétition," Post-Print halshs-00497623, HAL.
    2. Netsanet Haile & Jörn Altmann, 2017. "Evaluating Investments in Portability and Interoperability between Software Service Platforms," TEMEP Discussion Papers 2017136, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised May 2017.
    3. Kevin Boudreau, 2010. "Open Platform Strategies and Innovation: Granting Access vs. Devolving Control," Management Science, INFORMS, vol. 56(10), pages 1849-1872, October.
    4. Yu Wang & Yu Chen & Bonwoo Koo, 2017. "Open Source and Competition Strategy Under Network Effects," Graz Economics Papers 2017-03, University of Graz, Department of Economics.
    5. Greenstein, Shane, 2010. "Innovative Conduct in Computing and Internet Markets," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 477-537, Elsevier.
    6. Bottai, Carlo, 2015. "Open Innovation in a Model à la Hotelling," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201526, University of Turin.
    7. Selam Abrham Gebregiorgis & Jorn Altmann, 2012. "IT Service Platforms: Their Value Creation Model and the Impact of their Level of Openness on their Adoption," TEMEP Discussion Papers 201295, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Jun 2012.
    8. Llanes, Gastón & de Elejalde, Ramiro, 2013. "Industry equilibrium with open-source and proprietary firms," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 36-49.
    9. Constance E. Helfat & Miguel A. Campo-Rembado, 2016. "Integrative Capabilities, Vertical Integration, and Innovation Over Successive Technology Lifecycles," Organization Science, INFORMS, vol. 27(2), pages 249-264, April.

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