Walled Garden Rivalry: The Creation of Mobile Network Ecosystems

George Mason Law & Economics Research Paper No. 11-50.  Thomas W. Hazlett, Professor of Law & Economics, George Mason University School of Law, David Teece, Thomas W. Tusher Professor in Global Business, UC Berkeley Haas School of Business, Leonard Waverman, Dean of the Haskayne School of Business at the University of Calgary.

Dynamic competitive forces are dramatically altering mobile markets in the U.S. and around the world. Wireless networks, having sunk considerable capital in the creation of phone systems, must not only compete among themselves for subscribers, but also need to form strategic alliances with emerging handset application platforms (HAPs) created by such firms as Research in Motion (Blackberry), Apple (iPhone), and Google (Android). Current developments illustrate two fundamental aspects of innovation. First, that innovations created by one set of investors may generate returns for complementary suppliers, either via coordinated activity (strategic platforms) or competitive rivalry (appropriation). Second, that the efficiency of such ecosystems may be enhanced by market structure innovations that either extend vertical control or delimit it. This runs counter to the prevailing popular and regulatory sentiment that “open” platforms offer categorically superior welfare outcomes than do “closed” systems – aka “walled gardens.” Full text available on SSRN: http://ssrn.com/abstract=1963427.

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