Open Source in International Market Economy

Hold-up problem and open source as infrastructure solution

Micheal and Yuri's article on Gigaom talks about the fate of Flash. Flash is an exception in the history of Public Software Institutions over the last 50 years of Web development which was dominated open source [1]. They discuss the hold-up problem that is fundamental to the dependencies created in the proprietary world. The cost of dependent software is a common experience, where if you want to use Microsoft Office or Pagemaker software, you also need Microsoft Windows and one has to also pay for a Windows license. Pagemaker's dependency on Windows requires that Windows works with Pagemaker and also grants Pagemaker the right to develop software on Windows. If Windows does not want Pagemaker to be run on Windows it becomes a hold-up for Pagemaker and for Pagemaker users who are Windows users. Note that this hold-up is generally not an issue with Open Source Licences as Pagemaker can both work out a patch as it can see the internals or it can release a Pagemaker version which installs the dependent software. They elaborate on the severity of the hold-up problem 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." Most businesses are vary of this hold-up problem, while they are also interested in creating these dependencies that can increase the potential of hold-up of other businesses and especially software used in Governments. [Microsoft's 25% worldwide income is US govt]. Further they say "open Source is an economically powerful solution to the hold up problem". When software used by governments and those that the public depend on are held-up.