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  • Summer 2015
  • Article
  • Journal of Economics & Management Strategy

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

By: Ramon Casadesus-Masanell and Gaston Llanes
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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 explain why the owner of a proprietary platform such as Microsoft has chosen to contribute to the development of Linux.

Keywords

Motivation and Incentives; Digital Platforms; Open Source Distribution; Investment

Citation

Casadesus-Masanell, Ramon, and Gaston Llanes. "Investment Incentives in Open-Source and Proprietary Two-Sided Platforms." Journal of Economics & Management Strategy 24, no. 2 (Summer 2015): 306–324.
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About The Author

Ramon Casadesus-Masanell

Strategy
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