Mechanism Design to Promote Free Market and Open Source Software Innovation

Some economic strategists now assert that the greatest value in information goods is not created by thestrongest and most restrictive intellectual property protection. Proponents of Open Source Software argue for value created by peer review and openly modifiable shared code. To explore these ideas, we articulate a balance of incentives as indexed by the length of time that software remains proprietary, and openness as indexed by the amount of the platform code base that an author releases to the developer community (and users) to promote the creation of new products. We analyze the trade-off between early and late release based on a two-sided network externality that explores how the release of free information benefits those who develop as well as those who consume. We also introduce a framing innovation that places existing licenses in a space that suggests where unexplored socially optimal licenses might exist.