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Open Source and Economics: How the Hold Up Problem Explains the Flash Wars

Aug 09, 2010, 16:34 (0 Talkback[s])
(Other stories by kgoyette)

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"The hold up problem is particularly severe in the IT sector. Building an Internet company on a foundation consisting of proprietary software owned by others is akin to building a house without owning the land under it. When software is sold in binary form, the buyer is subject to hold up by the vendor; if the software needs to be changed in the future, such changes can only be done with the cooperation of the original vendor at the price that the original vendor demands. By relying on open source, a company can invest in developing its product without fear of being held up down the road. Therefore, open source is an economically powerful solution to the hold up problem."

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