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

Author(s):	Joachim Henkel
Publication Date:	July 2004
Keyword(s):	development collaboration, embedded linux, innovation, open source software
JEL(s):	L11, L15, L86
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=4507

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.