Working Paper No. 11-50:
Walled Garden Rivalry: The Creation of Mobile Network Ecosystems

Author(s):

Thomas Hazlett, David Teece, Leonard Waverman

Date Posted: November 2011

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Abstract:

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."