Finance

Business

Externality

Archaeology

Hierarchy

Corporate governance

History

Network effect

Transaction cost

Psychology

Economics

Microeconomics

Network governance

Incentive

Bazaar

Market economy

Industrial organization

Social psychology

Openness to experience

Organization Studies

A growing body of literature describes the open source phenomenon in the software industry. Drawing on transaction cost economics, we propose that open source projects illustrate a new generic governance structure — which we label bazaar governance — based on a specific legal contract: the open licence. We characterize this structure in terms of its strengths and weaknesses and compare it to market, firm and network forms. Low levels of control and weak incentives intensity are distinctive features of bazaar, lending a high uncertainty to governed transactions. However, bazaar governance promotes the openness of open source communities, which can generate strong positive network externalities and subsequent efficiency in cumulative transactions. Our theoretical developments offer a potential basis for future research.

Neither Market nor Hierarchy nor Network: The Emergence of Bazaar Governance