Innovation, Openness, and Platform Control

Innovation and Economic Growth

Article Snapshot

Author(s)

Geoffrey Parker and Marshall Van Alstyne

Source

Working Paper, 2008

Summary

This paper asks why some products, like Microsoft’s Windows, are made to work with those produced by others.

Policy Relevance

Antitrust regulators should hesitate to intervene with leading technology platforms, because the platforms have reasons to benefit consumers and the market is very complex.

Main Points

  • Software “platforms” like Microsoft’s Windows or Google’s search engine are technological places serving many different users. A platform offers tools or components for others, especially software developers “downstream.”

  • Platform owners can compete with downstream developers as well. Microsoft added a media player to Windows, competing with outside developers who made media players.

  • A platform leader holds back from competing with downstream developers long enough for the developers to profit. Developers want platform owners to solve hard problems like making sure all the technology works together, even if eventually the platform owner competes with the developers.
    • Consumers and developers both benefit from a platform owner’s rule that technologies on the platform must be open and interoperate.

  • The platform owner will start to compete with the first wave of downstream developers when the second wave becomes more productive than the first wave.

  • Platform owners have reasons to behave in ways that benefit consumers, and regulators should be less concerned about the platform owners’ market power and prices.

  • Factors affecting how fast and how much a platform owner opens its platform to work with others include technological uncertainty (less open), more developer participation (more open), competition between developers (less open), competition between platforms (more open), and the terms of contracts with developers.

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