A response to fake news as a response to Citizens United

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Six Challenges in Platform Licensing and Open Innovation

This article describes six common challenges of design, incentives, and governance that arise in establishing platform businesses. It also proposes solutions. It considers, for example, how to open a platform to decentralized innovation yet still earn a return; how to incorporate best-of-breed innovations from different sources while avoiding problems of multi-party hold-up; and how to encourage sources of good ideas to contribute those ideas despite the risk of losing them to owners of indispensible complements. We express these issues and solutions as a reduced set of tradeoffs useful for managing information and technology property.licensing, open source, free software, dual licensing, platform, intellectual property.

Information Complements, Substitutes, and Strategic Product Design

Competitive maneuvering in the information economy has raised a pressing question: how can firms raise profits by giving away products for free? This paper provides a possible answer and articulates a strategy space for information product design. Free strategic complements can raise a firm's own profits while free strategic substitutes can lower profits for competitors. We introduce a formal model of cross-market externalities based in textbook economics -- a mix of Katz & Shapiro network effects, price discrimination, and product differention -- that leads to novel strategies such as an eagerness to enter into Bertrand price competition. This combination helps to explain many recent firm strategies such as those of Microsoft, Netscape (AOL), Sun, Adobe, and ID. We also introduce the concept of a ''content-creator'' who adds value for end-consumers but may not be paid directly. Similar to the case of product dumping, this research implies that both firms and policy makers need to consider complex market interactions to grasp information product design and profit maximization. The model presented here argues for three simple and intuitive results. First, a firm can rationally invest in a product it intends to give away into perpetuity even in the absence of competition. The reason is that increased demand in a complementary goods market more than covers the cost of investment in the free goods market. Second, we identify distinct markets for content-providers and end-consumers and show that either can be a candidate for the free good. The decision on which market to charge rests on the relative elasticities as governed by their network externality effects. If the externality effect is sufficiently great, the market with the higher elasticity is the market to subsidize with the free good. It is also possible to charge both markets but to keep one price artificially low. Importantly, the modeling contribution is distinct from tying in the sense that consumers need never purchase both goods -- unlike razors and blades, the products are stand-alone goods. It also differs from multi-market price discrimination in the sense that the firm may extract no consumer surplus from one of the two market segments, implying that this market would have previously gone un-served. Third, a firm can use strategic product design to penetrate a market that becomes competitive post-entry. The threat of entry is credible even in cases where it never recovers its sunk costs directly. The model therefore helps to explain several interesting market behaviors such as free goods, upgrade paths, split versioning, and strategic information substitutes.http://deepblue.lib.umich.edu/bitstream/2027.42/39683/3/wp299.pd

Information Complements, Substitutes, and Strategic Product Design

Competitive maneuvering in the information economy has raised a pressing question: how can firms raise profits by giving away products for free? This paper provides a possible answer and articulates a strategy space for information product design. Free strategic complements can raise a firm's own profits while free strategic substitutes can lower profits for competitors. We introduce a formal model of cross-market externalities based in textbook economics -- a mix of Katz & Shapiro network effects, price discrimination, and product differention -- that leads to novel strategies such as an eagerness to enter into Bertrand price competition. This combination helps to explain many recent firm strategies such as those of Microsoft, Netscape (AOL), Sun, Adobe, and ID. We also introduce the concept of a ''content-creator'' who adds value for end-consumers but may not be paid directly. Similar to the case of product dumping, this research implies that both firms and policy makers need to consider complex market interactions to grasp information product design and profit maximization. The model presented here argues for three simple and intuitive results. First, a firm can rationally invest in a product it intends to give away into perpetuity even in the absence of competition. The reason is that increased demand in a complementary goods market more than covers the cost of investment in the free goods market. Second, we identify distinct markets for content-providers and end-consumers and show that either can be a candidate for the free good. The decision on which market to charge rests on the relative elasticities as governed by their network externality effects. If the externality effect is sufficiently great, the market with the higher elasticity is the market to subsidize with the free good. It is also possible to charge both markets but to keep one price artificially low. Importantly, the modeling contribution is distinct from tying in the sense that consumers need never purchase both goods -- unlike razors and blades, the products are stand-alone goods. It also differs from multi-market price discrimination in the sense that the firm may extract no consumer surplus from one of the two market segments, implying that this market would have previously gone un-served. Third, a firm can use strategic product design to penetrate a market that becomes competitive post-entry. The threat of entry is credible even in cases where it never recovers its sunk costs directly. The model therefore helps to explain several interesting market behaviors such as free goods, upgrade paths, split versioning, and strategic information substitutes.

Innovation, Openness, and Platform Control

We explore innovation, openness, and the duration of intellectual property protection in markets characterized by platforms and their ecosystems of complementary applications. We find that competition among application developers can reduce innovation while competition among platforms can increase innovation. Developers can be better off submitting to platform control as opposed to producing for an unsponsored platform. Although a social planner would open a platform sooner and to a greater degree than would a private platform sponsor, a platform sponsor’s ability to control downstream innovation gives it reason to behave more like a social planner. However, if platforms are to perform this role, platform sponsors need longer duration rights than application developers. Results can inform antitrust and intellectual property regulation, technological innovation, competition policy, and intellectual property strategy.The National Science Foundation, Cisco Systems Inc, and The Microsoft Corporatio

Networks, Information & Social Capital

This paper is based on a draft formerly titled “Network Structure & Information Advantage.”This paper investigates how information flows enable social networks to constitute social capital. By analyzing the information content encoded in email communication in an executive recruiting firm, we examine the long held but empirically untested assumption that diverse networks drive economic performance by providing access to novel information. We show that diverse networks provide diverse, novel information, and that access to novel information predicts productivity and performance. But whether diverse networks deliver novel information depends on a tradeoff between network diversity and communication channel bandwidth: as networks become diverse, channel bandwidth contracts. As network diversity and channel bandwidth both enable access to more novel information, diverse networks provide more novel information (a) when the topic space is large, (b) when topics are distributed non-uniformly across nodes and (c) when information in the network changes frequently. Diverse networks are not just pipes into diverse knowledge pools, but also inspire non-redundant communication even when the knowledge endowments of contacts are homogenous. Consistent with theories of cognitive capacity, bounded rationality, and information overload, there are diminishing marginal productivity returns to novel information. Network diversity also contributes to performance when controlling for the performance effects of novel information, suggesting additional non-information based benefits to structural diversity. These analyses unpack the mechanisms that enable information advantages in networks and serve as a 'proof-of-concept' for using email content to analyze relationships between information, networks and social capital in organizations.The National Science Foundation, Cisco Systems Inc., France Telecom and the MIT Center for Digital Business

Electronic Communities: Global Villages or Cyberbalkanization? (Best Theme Paper)

Information technology can link geographically separated people and help them locate interesting or compatible resources. Although these attributes have the potential to bridge gaps and unite communities, they also have the potential to fragment interaction and divide groups by leading people to spend more time on special interests and by screening out less preferred contact. This paper introduces precise measures of “balkanization” then develops a model of individual knowledge profiles and community affiliation. These factors suggest conditions under which improved access, search, and screening might either balkanize or integrate interaction. As IT capabilities continue to improve, policy choices we make could put us on more or less attractive paths

Managing Platform Ecosystems

We examine how control over a technology platform can increase profits and innovation. By choosing how much to open and when to bundle enhancements, platform sponsors can influence choices of ecosystem partners. Platform openness invites developer participation but sacrifices direct sales. Bundling enhancements early drives developers away but bundling late delays platform growth. Ironically, developers can prefer sponsored platforms to unmanaged open standards despite giving up their applications. Results can inform antitrust law and innovation strategy

Opening the Code: How Open Is Optimal?

Recent developments have challenged one prevailing interpretation of the idea that proprietary systems, enshrined in copyright, create the greatest value. The challenge appears at one level among economic strategists who assert that the greatest value in information goods is not created by the strongest and most restrictive intellectual property protection and in another form by the proponents of Open Source Software who argue for value created by peer review and openly modifiable, shared code. We articulate a balance of incentives and openness to promote both the creation of new products and the network externality benefits from open access. We consider the welfare of consumers and producers to show that environmental parameters such as the size of the market, the network effects, and the locus of innovation can affect the optimal choice of time to release and degree of openness