Openness, Open Source, and the Veil of Ignorance

Author(s): Suzanne Scotchmer
Year: 2010

Abstract: Open source collaborations are increasingly among commercial firms whose interest is profit. Why would profit-motivated firms voluntarily share code? One reason is that cost reductions can outweigh increases in rivalry. This is especially persuasive when the contributors make complementary products. However, cost reductions do not explain why open source is a more profitable way of sharing than other forms of licensing. Why would firms use an inflexible contract like the GPL? I present a model that shows how open source licensing can lead to higher industrywide profit than would result if a first innovator could choose the most profitable license once it finds itself in the position of first innovator. From behind a veil of ignorance, that is, not knowing which firm will be first, open source licensing creates higher expected profit for the industry as a whole, and thus for each firm, than if first innovators were allowed to choose.

Keywords: open source software, intellectual property, computer software, disclosure of intellectual property, computer software

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1524051