Abstract

http://ssrn.com/abstract=1381624
 
 

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The Pitfalls of Subsystem Integration: When Less is More


Sanjiv Erat


University of California, San Diego (UCSD) - Rady School of Management

Stelios Kavadias


University of Cambridge - Judge Business School

Cheryl Gaimon


Georgia Institute of Technology - Operations Management Area

May 8, 2012

Forthcoming in Management Science

Abstract:     
In various industries end-product manufacturers acquire core subsystems from upstream technology provider firms, and focus primarily on efficient end-product integration.We examine the strategic interactions between a technology firm that introduces a new subsystem, and the respective end-product manufacturers (’integrators’). We analyze how the fraction of end-product functionalities pre-packaged into the subsystem impacts the optimal introduction strategy and the relative value appropriation power across the industries. Offering a subsystem that performs many end-product functions has a dual effect on the provider’s profits. On the positive side, the provider extracts a higher ease-of-use rent from the integrators because of the easier/cheaper integration. On the negative side, such subsystems may curtail the adopters’ ability for competitive differentiation, and render adoption less valuable. We discuss the role of subsystem functionality in value appropriation in technology markets, and we highlight the perils of subsystem over-integration.

Number of Pages in PDF File: 45

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Date posted: April 16, 2009 ; Last revised: May 11, 2012

Suggested Citation

Erat, Sanjiv and Kavadias, Stelios and Gaimon, Cheryl, The Pitfalls of Subsystem Integration: When Less is More (May 8, 2012). Forthcoming in Management Science. Available at SSRN: http://ssrn.com/abstract=1381624 or http://dx.doi.org/10.2139/ssrn.1381624

Contact Information

Sanjiv Erat (Contact Author)
University of California, San Diego (UCSD) - Rady School of Management ( email )
9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
HOME PAGE: http://www.rady.ucsd.edu/faculty/directory/erat/
Stylianos Kavadias
University of Cambridge - Judge Business School ( email )
Trumpington Street
Cambridge, Cambridgeshire CB2 1AG
United Kingdom
HOME PAGE: http://www.jbs.cam.ac.uk/research/kavadiass.html
Cheryl Gaimon
Georgia Institute of Technology - Operations Management Area ( email )
755 Ferst Drive
Atlanta, GA 30332-0250
United States
404-894-4934 (Phone)
Feedback to SSRN


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