Working Paper: CEPR ID: DP4507
Authors: Joachim Henkel
Abstract: 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.
Keywords: development; collaboration; embedded linux; innovation; open source software
JEL Codes: L11; L15; L86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Compulsory revealing (D82) | Higher product qualities (L15) |
| Compulsory revealing (D82) | Higher profits (D33) |
| Revealing by both firms (D26) | Equilibrium outcome (D51) |
| Revealing complements competitive advantage (L15) | Higher product qualities (L15) |
| Revealing complements competitive advantage (L15) | Higher profits (D33) |