Economic Effects of Open Innovation
3.3 Economic Effects of Open Innovation .1 Marginal Product Increasing
The most important characteristics brought about by the activation of smartphone- based mobile data traffic in the knowledge-based economy include, first, phenom- ena of increasing marginal products.
When mobile data traffic is activated in a knowledge-based economy, the inflows of new knowledge and technologies from the outside rapidly increase as open inno- vation of knowledge and technologies is activated, as labor inputs increase, or as the amount of capital increases. Furthermore, more effective marketing or technology innovation occurs through the outflows of unutilized knowledge and technologies to the outside. This is a new characteristic of the knowledge-based economy—the mobile data traffic open innovation economy.
Along with the acceleration of a knowledge-based economy in modern society, the phenomenon of increasing marginal products appears as a reduction of business fluctuations in the world economy and the acceleration or continuation of economic growth in countries where mobile data traffic open innovation has developed.
According to Romer (1990), technological advances are the driving force of eco- nomic growth, and the outcomes of technological advances are created by research and development. According to Romer, the core of technological advances is the creation of new knowledge. When new knowledge has been created through research and development, the knowledge is widely utilized by society members, in particu- lar, by enterprises, as part of open innovation and the productivity of production
3.3 Economic Effects of Open Innovation
factors, such as labor and capital, is enhanced. This is because of the absence of rivalry of knowledge and technology as semipublic goods (Rivera-Batiz and Romer 1991; Romer 1986, 1990).
3.3.2 Economy of Diversity
The development of a knowledge-based society and the activation of open innova- tion have characteristics of product diversification and the growth of niche markets.
The unceasing open innovation by users or consumers and related enterprises and supporting enterprises enables continuous appearance of new niche innovation products. These products are delivered to consumers through smartphone mobile data traffic without any additional marketing costs, and the size of niche markets continuously grows.
This economy of diversity is gradually being accelerated as the opportunity and possibility of participation in the production of niche innovation products through users’ participation in user-based open innovation are expanded based on the exist- ing Internet and mobile data traffic (Di Gangi and Wasko 2009; Franke and Piller 2004; Henkel and Von Hippel 2005; Luthje et al. 2003; Morrison et al. 2000; Perez and De Pablos 2003; Sundbo and Toivonen 2011; Von Hippel 2009). The activation of the economy of diversity means the erosion of the economy of scale. In reality if open innovation is activated, the economy of scale intended to reduce costs is gradu- ally declining, and the economy of scope is being activated. The concept of the long-tailed economy describes the shape of the graph but does not describe the essence of certain economic phenomena. The economy of diversity can be defined as the activation of niche markets and the expansion of the diversity of niche prod- ucts from commons, customers, and users, which are the essence of the long-tailed economy (Dietz et al. 2003; Ostrom 1990, 2009).
3.3.3 X-Efficiency Enhancement
The activation of open innovation enables the renewal of the maximum value of products that can be made by enterprises by investing certain labor and capital. That is, no allocative efficiency can be maximized by new technology-based new prod- ucts or new process innovation. Therefore, the activation of open innovation boils down to the enhancement of X-efficiency.
Even in cases where enterprises’ X-inefficiency appears because of monopoly, the activation of innovation utilizing users’ or consumers’ new innovation ideas or user-based open innovation by users or consumers can enhance the X-efficiency of the relevant product production to offset the X-inefficiency caused by monopoly.
For instance, the continuous or gradual expansion of market sizes and operating profits appearing in Amazon.com, Apple App Store, iTunes, etc., despite their monopolistic nature, is arguably evidence of the X-efficiency of open innovation
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that offsets the X-inefficiency of monopoly (De Alessi 1983; Fu and Heffernan 2007; Leibenstein 1978).
Among the conditions for open innovation activities intended to enhance X-efficiency, three conditions have been presented from the viewpoint of the suc- cess factors of user-based open innovation in App Store (Yun 2010). These condi- tions are production tool kits with high user convenience and completeness, transparent and immediate guarantee of profits of participants in S/W production, and clear attribution of intellectual properties from open innovation to users. In other words, if transparent and clear systematic and economic devices are installed, which will enable the users or consumers of the relevant product to participate in product innovation and obtain guaranteed profits, user-based open innovation will be immediately activated, and X-efficiency will be enhanced.
Research Question
1. Identify and explain the economic effect of open innovation by evidence in your life.
2. Examine and explain the open innovation of App Stores such as Apple App Store or Android Market.
3. Find long tail examples in your life and analyze and explain them by the open innovation concept.
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J.J. Yun, Business Model Design Compass, Management for Professionals, DOI 10.1007/978-981-10-4128-0_4