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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.

Suggested Citation

  • 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.
    • Handle: RePEc:bol:bodewp:wp825
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    References listed on IDEAS

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    1. Denicolo, Vincenzo, 2000. "Compatibility and Bundling with Generalist and Specialist Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 177-188, June.
    2. 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 105-123, March.
    3. Andrea Mantovani & Francisco Ruiz-Aliseda, 2016. "Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors," Management Science, INFORMS, vol. 62(2), pages 534-549, February.
    4. Doh‐Shin Jeon & Domenico Menicucci, 2011. "Interconnection among academic journal websites: multilateral versus bilateral interconnection," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 363-386, June.
    5. Ramon Casadesus-Masanell & Francisco Ruiz-Aliseda, 2008. "Platform Competition, Compatibility, and Social Efficiency," Working Papers 08-32, NET Institute.
    6. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
    7. Annabelle Gawer & Rebecca Henderson, 2007. "Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 1-34, March.
    8. Benjamin E. Hermalin & Michael L. Katz, 2013. "Product Differentiation through Exclusivity: Is there a One-Market-Power-Rent Theorem?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 1-27, March.
    9. 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.
    10. Jay Pil Choi, 2008. "MERGERS WITH BUNDLING IN COMPLEMENTARY MARKETS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 553-577, September.
    11. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-1181, December.
    12. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, July.
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    Citations

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    Cited by:

    1. Hagiu, Andrei & Jullien, Bruno & Wright, Julian, 2018. "Creating platforms by hosting rivals," TSE Working Papers 18-970, Toulouse School of Economics (TSE).
    2. Andrea Mantovani & Francisco Ruiz-Aliseda, 2016. "Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors," Management Science, INFORMS, vol. 62(2), pages 534-549, February.
    3. repec:eee:iepoli:v:39:y:2017:i:c:p:45-59 is not listed on IDEAS
    4. Carlo Reggiani, "undated". "Optimal Differentiation and Spatial Competition: The Spokes Model with Product Delivery," Discussion Papers 09/13, Department of Economics, University of York.
    5. Emilie Dargaud & Carlo Reggiani, 2015. "On The Price Effects Of Horizontal Mergers: A Theoretical Interpretation," Bulletin of Economic Research, Wiley Blackwell, vol. 67(3), pages 236-255, July.
    6. repec:bla:jomstd:v:55:y:2018:i:7:p:1278-1316 is not listed on IDEAS
    7. Halmenschlager, Christine & Mantovani, Andrea, 2017. "On the private and social desirability of mixed bundling in complementary markets with cost savings," Information Economics and Policy, Elsevier, vol. 39(C), pages 45-59.
    8. Andrea Mantovani & Claudio Piga & Carlo Reggiani, 2017. "The dynamics of online hotel prices and the EU Booking.com case," Working Papers 17-04, NET Institute.
    9. repec:eee:tefoso:v:136:y:2018:i:c:p:30-48 is not listed on IDEAS
    10. Carlo Reggiani, 2014. "Spatial Price Discrimination in the Spokes Model," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(3), pages 628-649, September.
    11. repec:eee:tefoso:v:128:y:2018:i:c:p:133-143 is not listed on IDEAS

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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