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Forking, Fragmentation, andSplintering
Tim Simcoe & Jeremy Watson
Boston University
Platform Strategy Research Symposium 2017
July 13, 2017
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Four Paths to Compatibility (Farrell & Simcoe, 2012)
I Follow the LeaderI Platform Leader, Gov’t, Customer
I Standards Wars
I Standard Setting Organizations
I Converters & Multi-homing
Should we also classify persistent incompatibility?
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Incompatibility
I Despite compatibility avenues, persistent incompatibilitycommon
I Often come in familiar flavorsI Uber/Lyft, Spotify/Apple Music/Google PlayI Electrical sockets/plugsI Cryptocurrencies
I Fragmented terminology in literature on platform forking,fragmentation, and splintering
I Policy relevance, e.g., Google
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
This paper: Forking, fragmentation, and splintering
I What are the key modes of incompatibility?I ForkingI FragmentationI Splintering
Differ on... Game # Players Equilibrium
Splintering Standard B.o.S. Many Pure strategy
Fragmentation Standard B.o.S. Few Mixed Strategy
Forking Interoperability P.L.B. Few Mixed Strategy
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Splintering: a model
I Many players, choosing discrete technologiesI Payoffs
I Player i receives $2×# number of players that choosetechnology j, plus $3 if j is preferred technology of i
I StrategiesI Coordination on one technology ⇒ Nash equilibriumI Non-coalition proof pure-strategy equilibrium ⇒ Splintering
Pareto dominated equilibrium
I Key features:I Decentralized adoptionI Design-specific investment ⇒ switching costs ⇒ lock-in
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Splintering: railroads (Gross, 2016)
Southern Rail and Steamship Association: May 31, 1886
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Splintering: early automobiles (Thompson, 1954)
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Splintering takeaway
I Splintering the result of...I Decentralized decision makingI Technical uncertainty
I Resolved via...I Endogenous problem solvingI SSO (SAE), or monopoly leadership (Railroads)I But, slow path to compatibility
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Fragmentation: a model
Player 2
A B
Player 1A (10 + x , 10) (0, 0)
B (0, 0) (10, 10 + x)
I StrategiesI Pure strategy equilibria⇒ CoordinationI Mixed strategies → Fragmentation (pareto dominated)
I Players choose preferred technology with p = 10+x20+x
I Pr(fragmentation)p→ 1 as x grows
I Key featuresI Small # key playersI Strong vested interest (x), e.g., patents/IPR
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Fragmentation: examples
I 56K Modems (Greenstein & Rysman, 2007)I US Robotics Vs. RockwellI Patents ⇒ DeadlockI Two standards: X2 vs. Flex (1997)I ISPs divide, AOL waitsI ITU compromise: V.90 (1998)
I Blu-ray vs. HD-DVDI Two consortiaI Patent licensing incentivesI Importance of content/studiosI Sony Playstation
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Fragmentation wrap up
I Characterized byI Often at point of technical upgradeI Few key players, differing over small set of options
I Uncertainty over standard ⇒ market hesitationI Urgency to resolve fragmentationI Standard setting committee, standards war
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Forking: a model
Player 2
A B
Player 1A (10, 0) (0, 10)
B (0, 10) (10, 0)
I StrategiesI No pure strategy equilibriumI Mixed strategies ⇒ players play both technologies with p = 0.5
I Key FeaturesI Cat/Mouse
I Disagree over interoperabilityI Need change in payoffs for stable compatibility
I Preventing proprietary networks/emergence of competingnetworks
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Forking: examples
I MS and JavaI “Embrace, extend, & extinguish”I Importance of market powerI Fighting for what? Developers.I Private case ⇒ $2B settlement
I Instant MessagingI ICQ, PowWow, AIMI Killer App = “Buddy List”I AOL-Time Warner Merger (FCC)I Names & Presence Directory (NPD)
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Forking: wrap up
I Forking characteristicsI Fundamental disagreement on interoperabilityI Cat and Mouse game
I Resolution?I Payoff structure changesI Gov’t intervention, antitrust
I Open source (e.g., GPL)
I Distinguishing exclusion from platform vs. disagreement overtechnical direction
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Policy Implications?
I Preference for compatibility, recognizing that “good forks”can occur under certain conditions:
I High demand for varietyI Added functionality without degrading rivalsI Lots of uncertaintyI Cheap converters or multi-homing
I Complex trade-offsI Variety vs. Compatibility, Innovation vs. Competition
I Recent examplesI Android anti-forking provisionsI API copyrightability (e.g., Oracle v Google)
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business
Thanks
Thank [email protected], [email protected]
Tim Simcoe & Jeremy Watson Boston University Questrom School of Business