How does competition influence innovative effort within a platform-based ecosystem? Contrasting paid and unpaid contributors

Unpaid individuals are an important source of contributions to many ecosystems. An understudied phenomenon is how such contributions are shaped by competition. In this paper, we study how the rate and type of new product creation are shaped by competition. We contrast its impact on “paid” developers that profit by selling their products to that on “unpaid” developers that release their software for free. Using a hand-collected dataset on the jailbreak ecosystem, we find that increasing competition has a stronger negative effect on the rate of innovation by paid developers than that of unpaid developers. We also find that increasing competition is associated with a reduction in the reuse of existing technological components by unpaid developers, relative to paid developers, suggesting that the types of products developed also shift as competition increases. The results suggest that competition has an important role in shaping innovation in platform-based ecosystems, but that it differs for paid and unpaid contributors.