Discussion paper

DP4507 The Jukebox Mode of Innovation - A Model of Commercial Open Source Development

In this Paper, I explore the circumstances under which innovation processes without secrecy or intellectual property protection are viable, and where free revealing of innovations is a profit-maximizing strategy. Motivated by an empirical study of embedded Linux, I develop a duopoly model of quality competition. Firms require two complementary technologies as inputs, but differ with respect to the relative importance of these technologies. I find that a regime with compulsory revealing can lead to higher product qualities and higher profits than a proprietary regime. When the decision to reveal is endogenized, equilibria with voluntary revealing arise, again superior to the proprietary outcome.

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Citation

Henkel, J (2004), ‘DP4507 The Jukebox Mode of Innovation - A Model of Commercial Open Source Development‘, CEPR Discussion Paper No. 4507. CEPR Press, Paris & London. https://cepr.org/publications/dp4507