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The Impact of Modularity on Intellectual Property and Value Appropriation


Carliss Y. Baldwin


Harvard Business School, Finance Unit

Joachim Henkel


TUM School of Management - Technische Universität München (TUM); Centre for Economic Policy Research (CEPR)

November 20, 2012

Harvard Business School Finance Working Paper No. 12-040

Abstract:     
Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect intellectual property (IP). We investigate the impact of modularity on IP protection by formally modeling three different threats to the value of IP: (1) unauthorized use by known agents; imitation or substitution by third parties; and the withdrawal of IP by agents or third party owners. For each threat, we consider the impact of modularity in the presence or absence of an effective legal system. The models permit us to identify specific strategies for protecting IP and thus capturing value in modular systems. We illustrate each of the major strategies with examples from practice.

Number of Pages in PDF File: 40

Keywords: Modularity, value appropriation, intellectual property

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Date posted: December 12, 2011 ; Last revised: November 21, 2012

Suggested Citation

Baldwin, Carliss Y. and Henkel, Joachim, The Impact of Modularity on Intellectual Property and Value Appropriation (November 20, 2012). Harvard Business School Finance Working Paper No. 12-040. Available at SSRN: http://ssrn.com/abstract=1971203 or http://dx.doi.org/10.2139/ssrn.1971203

Contact Information

Carliss Y. Baldwin (Contact Author)
Harvard Business School, Finance Unit ( email )
Boston, MA 02163
United States
Joachim Henkel
TUM School of Management - Technische Universität München (TUM) ( email )
Arcisstr. 21
Munich, D-80333
Germany
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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