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The Power of Integrality: Linkages between Product Architecture, Innovation, and Industry Structure

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  • Fixson, Sebastian K.
  • Park, Jin-Kyu
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    Abstract

    A substantial literature stream suggests that many products are becoming more modular over time, and that this development is often associated with a change in industry structure towards higher degrees of specialization. These developments can have strong implications for an industry€ٳ competition as the history of the PC industry illustrates. To add to our understanding of the linkages between product architecture, innovation, and industry structure we study an unusual case in which a firm Â€Ó through decreasing its product modularity Â€Ó turned its formerly competitive industry into a near-monopoly. Using this case study we explore how existing theories on modularity explain the observed phenomenon, and show that most consider in their analysis technological change in rather long-term dimensions, and tend to focus on efficiencyrelated arguments to explain the resulting forces on competition. Expanding on these theories we add three critical aspects to the theory construct that connects technological change and industry dynamics. First, we suggest re-integating as a new design operator to explain product architecture genesis. Second, we argue that a finer-grained analysis of the product architecture shows the existence of multiple linkages between product architecture and industry structure, and that these different linkages help explain the observed intra-industry heterogeneity across firms. Third, we propose that the firm boundary choice can also be a pre-condition of the origin of architectural innovation, not only an outcome of efficiency considerations.

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    File URL: http://hdl.handle.net/1721.1/37154
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    Bibliographic Info

    Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number 37154.

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    Date of creation: 13 Apr 2007
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    Handle: RePEc:mit:sloanp:37154

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    Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
    Phone: 617-253-2659
    Web page: http://mitsloan.mit.edu/
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    Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

    Related research

    Keywords: Product Architecture; Integrality; Modularity; Technological Change; Intra-industry Heterogeneity; Industry Structure; Competition; Strategy;

    This paper has been announced in the following NEP Reports:

    References

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    1. Richard N. Langlois, 2003. "Chandler in a Larger Frame: Markets, Transaction Costs, and Organizational Form in History," Working papers 2003-16R, University of Connecticut, Department of Economics, revised Jan 2004.
    2. Nicholas Economides, 1995. "The Economics of Networks," Working Papers 94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
    3. Cooper, Robin & Slagmulder, Regine, 2004. "Interorganizational cost management and relational context," Accounting, Organizations and Society, Elsevier, vol. 29(1), pages 1-26, January.
    4. Richard N. Langlois, 2002. "The Vanishing Hand: the Changing Dynamics of Industrial Capitalism," Working papers 2002-21, University of Connecticut, Department of Economics.
    5. Fixson, Sebastian K., 2007. "Modularity and Commonality Research: Past Developments and Future Opportunities," Working papers 37145, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
    7. Richard N. Langlois, 2005. "The Secret Life of Mundane Transaction Costs," Working papers 2005-49, University of Connecticut, Department of Economics.
    8. Langlois, Richard N., 2002. "Modularity in technology and organization," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 19-37, September.
    9. Alan MacCormack & John Rusnak & Carliss Y. Baldwin, 2006. "Exploring the Structure of Complex Software Designs: An Empirical Study of Open Source and Proprietary Code," Management Science, INFORMS, vol. 52(7), pages 1015-1030, July.
    10. Fixson, Sebastian K., 2007. "Modularity and Commonality Research: Past Developments and Future Opportunities," Working papers 37286, Massachusetts Institute of Technology (MIT), Sloan School of Management.
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