Option-Games Analysis on Software Industry: Dilemma Between Open Innovation and Clustering in China

In recent years, the development of software industry clusters has become a new luminescent spot in economic growth of the world, such as Silicon Valley, Bangalore of India, and Zhonguancun High-tech Park in Beijing.However, in the information era advancing world flatness, why does the software industry as foot-loose player still need clusters or seedbedsin global competition? On the other hand, even outside Silicon Valley as a famous software cluster at open innovation, which strategy is better between Linux's open and Microsoft's closed innovation? Based on technological information including explicit knowledge and tacit skill, we apply option-games approach to investment timing decision under uncertainty and competition. We find that the first mover in a duopoly model can create win-win relationship by sharing pioneering information with follower and recovering its investment. This type of social innovation is more useful for open innovation at software cluster. That is, cooperation or partnership can become an important strategy to improve the competitive advantage.