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

“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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