Research Note--Sole Entrant, Co-optor, or Component Supplier: Optimal End-Product Strategies for Manufacturers of Proprietary Component Brands

We propose the optimal strategies in the end-product market for manufacturers of proprietary component brands, MPCBs for short. MPCBs can pursue one of three end-product roles: sole entrant, as with 3Com that, until recently, offered its Palm operating system only as part of its own Palm handheld devices; co-optor, as with Canon, whose specialty motors go into its own and HP laser printers; component supplier, as with Intel, which has refrained from making its own PCs. Applying extant theoretical and modeling perspectives, especially from branding, spatial competition, and channels, we show that although each of the three roles has its unique domain of optimality, the co-optor role is the most widely optimal for the MPCB; it is profit maximizing even when the end products are strong (but not perfect) substitutes, an alternative component is available and the downstream market is saturated. Optimal prices under the co-optor role are higher than under the other roles. We provide an illustrative application of the model to three real-world settings.