| HBS Working Paper Series
Investment Incentives in Open-Source and Proprietary Two-Sided Platforms
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 four main results. First, the successful development of an open platform may require either wide or limited access by developers, depending on the characteristics of the applications market. Second, giving open access to one side in a proprietary platform may lead to fewer users and developers and to lower investment, relative to a platform with closed access to both sides. Third, 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 explain why the owner of a proprietary platform such as Microsoft has chosen to contribute to the development of Linux.
Keywords: Two-Sided Markets;
Motivation and Incentives;
Open Source Distribution;