| Abstract: |
We consider a firm A initially owning a software platform (e.g. operating
system) and an application for this platform. The specific knowledge of
another firm B is needed to make the platform successful by creating a further
application. When B’s application is completed, A has incentives to
expropriate the rents. Netscape claimed e.g. that this was the case with its
browser running on MS Windows. We will argue that open sourcing or
standardizing the platform is a warranty for B against expropriation of rents.
The different pieces of software are considered as assets in the sense of the
property rights literature (see Hart and Moore (Journal of Political Economy,
1990)). Two cases of joint ownership are considered beyond the standard cases
of integration and non-integration: platform standardization (both parties can
veto changes) and open source (no veto rights). In line with the literature,
the more important a party’s specific investments the more rights it should
have. In contrast to Hart and Moore, however, joint ownership can be optimal
in our setting. Open source is optimal if investments in the applications are
more important than in the platform. The results are driven by the fact that
in our model firms invest in physical (and not in human) capital and that
there is non-rivalry in consumption for software. |