TPRC45

This paper explores into the character of the market for operating systems in order to reach a better understanding of the characteristics, consequences of fragmentation, and impact in the overall development of the internet and the digital economy. For this purpose we consider the effects on trade and innovation, and on the significance for the architectures of networks in the digital economy.
The article includes a review of the various forms of market definition of software operating systems to understand their economic characteristics from a socio-technological view. From the early dominance of IBM’s OS/360 to UNIX-related systems and the disk operating systems [DOS] of IBM and Microsoft through to Apple’s Mac OS and Google systems [Chrome OS and Android], there has been a succession of dominant players.
We address the economic theory behind markets in platforms and its relationship with operating systems. Arguments are presented to describe three major sectors where the operating systems market requires further analysis: a) boundaries between the standard roles of consumption and production are blurred in the consideration of operating systems b) novel concepts of ownership c) the decoupling between services and physical supports raises issue of control rather than ownership.
In the digital mobile environment, consumers do produce valuable services, or add value to the standard services sold to them. These generate information and data. These data become necessary for the actors operating in other layers of the production chain to add value to their services and products, and to generate brand-new services and applications. Thus, a novel situation occurs: the overall welfare of the system cannot be subdivided into consumer surplus and producer surplus; producers might appropriate some part of the overall welfare by becoming “consumers” themselves of the information and data generated by the (previously-labelled) consumers. We suggest that policy guidelines based on the standard industrial organization analysis are no longer quite so valid and legitimate. The concept of surplus changes meaning when the “consumption” side of the ecosystem can add value and generate new surplus to the “production side”.

In the digital mobile industry, most of the inputs used by consumers are not really owned by them. Most of the inputs (intended in terms of both services and goods) utilized by the end user cannot be employed by the latter at will, according to their own “utility function”. The concept of ownership in law and economics is defined by the condition that the “owner” has the right to exclude others from the use of their property and can control the way in which others can restrain their use.

The problem of control retraces standard issues covered by “vertical analysis” in competition policy (in terms of foreclosure, discrimination, and fair usage). The literature dealing with the problem of vertical restraints addressess: how ownership in one layer of the chain affects the control of elements or modules in other layers of the vertical production chain, and therefore their usage. The way in which vertical restraints shifts the rights of actors along the chain is a problem much less developed in the literature and we are not aware of any work explicitly modelling and developing this issue.