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Platform Owner Entry and Innovation in Complementary Markets: Evidence from Intel

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  • Annabelle Gawer
  • Rebecca Henderson

Abstract

This paper draws on a detailed history of Intel's strategy with respect to the complementary markets for microprocessors to explore the usefulness of the current theoretical literature for explaining behavior. We find that as the literature predicts, Intel invests heavily in these markets, both through direct entry and through subsidy. We also find, again consistent with the literature, that the firm's entry decisions are shaped by the belief that it does not have either the capabilities or the resources to enter all possible markets, and thus that it believes it is critical to encourage widespread entry. As several authors have pointed out, this imperative places the firm in a difficult strategic position, since it needs to attempt to commit to potential entrants that it will not engage in an ex-post "squeeze", despite the fact that ex post it has very strong incentives to do so. We find that the fact that the complementary markets in which Intel competes are complex, dynamic and multilayered considerably sharpens this dilemma. We explore the ways in which Intel attempts to solve it, highlighting in particular the organizational structure and processes through which they attempt to commit to making money in the markets which they choose to enter while also committing not to making too much. Our results have implications for both our understanding of the dynamics of competition in complements and of the role of organizational structures and processes in shaping competition.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:11852
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    References listed on IDEAS

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    1. Bresnahan, Timothy F & Greenstein, Shane, 1999. "Technological Competition and the Structure of the Computer Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 1-40, March.
    2. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    3. Farrell, Joseph & Katz, Michael L, 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 413-432, December.
    4. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    5. Panzar, John C., 1989. "Technological determinants of firm and industry structure," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 1, pages 3-59 Elsevier.
    6. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
    7. Becchetti, Leonardo & Paganetto, Luigi, 2001. "The determinants of suboptimal technological development in the system company-component producers relationship," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1407-1421, November.
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    JEL classification:

    • L0 - Industrial Organization - - General

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