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Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors

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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 a firm with a collaboration link with a complementor puts some weight on the complementor's profit when making investment decisions. Once investment choices have taken place, all firms choose prices for their respective components in a noncooperative manner. In equilibrium, firms end up forming as many collaboration ties as it is possible, although they would all prefer a scenario where collaboration were forbidden. In addition, a social planner would also prefer such a scenario to the one arising in equilibrium. We show that the result that collaboration is inefficient for firms and society does not depend on whether collaboration ties are formed in an exclusive manner: in fact, exclusivity would only worsen the situation.

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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 11-31.

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Length: 31 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:net:wpaper:1131

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Web page: http://www.NETinst.org/

Related research

Keywords: Systems Competition; Complementary Products; Interoperability; Collaboration Link; Co-opetition; Exclusivity.;

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References

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  1. A. Mantovani & F. Ruiz-Aliseda, 2012. "Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors," Working Papers wp825, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. 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.
  3. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
  4. Annabelle Gawer & Rebecca Henderson, 2005. "Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel," NBER Working Papers 11852, National Bureau of Economic Research, Inc.
  5. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, 07.
  6. Denicolo, Vincenzo, 2000. "Compatibility and Bundling with Generalist and Specialist Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 177-88, June.
  7. Jay Pil Choi, 2008. "MERGERS WITH BUNDLING IN COMPLEMENTARY MARKETS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 553-577, 09.
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Cited by:
  1. Emilie Dargaud & Carlo Reggiani, 2012. "On the Price Effects of Horizontal Mergers: A Theoretical Interpretation," The School of Economics Discussion Paper Series 1201, Economics, The University of Manchester.
  2. Andrea Mantovani & Francisco Ruiz-Aliseda, 2011. "Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors," Working Papers 11-31, NET Institute.
  3. Carlo Reggiani, 2012. "Spatial price discrimination in the spokes model," The School of Economics Discussion Paper Series 1207, Economics, The University of Manchester.

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