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Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors

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  • A. Mantovani
  • F. Ruiz-Aliseda

Abstract

The recent years have exhibited a burst in the amount of collaborative activities among firms selling complementary products. This paper aims at providing a rationale for such a large extent of collaboration ties among complementors. To this end, we analyze a game in which the two producers of a certain component have the possibility to form pairwise collaboration ties with each of the two producers of a complementary component. Once ties are formed, each of the four firms decides how much to invest in improving the quality of the match with each possible complementor, under the assumption that collaborating with a complementor makes it cheaper to invest in enhancing match quality with such complementor. Once investment choices have taken place, all firms choose prices for their respective components. Our main finding in this setting is that firms end up forming as many collaboration ties as it is possible, although they would all prefer a scenario where collaboration were forbidden, unlike a social planner.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp825.

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Date of creation: May 2012
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Handle: RePEc:bol:bodewp:wp825

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  1. Jay Pil Choi, 2008. "MERGERS WITH BUNDLING IN COMPLEMENTARY MARKETS -super-* ," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 56(3), pages 553-577, 09.
  2. Annabelle Gawer & Rebecca Henderson, 2007. "Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 16(1), pages 1-34, 03.
  3. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(1), pages 105-23, March.
  4. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(522), pages 897-921, 07.
  5. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
  6. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
  7. Denicolo, Vincenzo, 2000. "Compatibility and Bundling with Generalist and Specialist Firms," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(2), pages 177-88, June.
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Cited by:
  1. Emilie Dargaud & Carlo Reggiani, 2012. "On the Price Effects of Horizontal Mergers : A Theoretical Interpretation," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 1222, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.

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