The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods
Vol. 124 No. 8 Voluntary forfeiture of intellectual assets – often, exceptionally valuable assets – is surprisingly widespread in information technology markets. A simple economic rationale can account for these practices. By giving away access to core technologies, a platform holder commits against expropriating (and thereby induces) user investments that support platform value. To generate revenues that cover development and maintenance costs, the platform holder must regulate access to other goods and services within the total consumption bundle. The trade-off between forfeiting access (to induce adoption) and regulating access (to recover costs) anticipates the substantial convergence of open and closed innovation models.