The Impact of Modularity on Intellectual Property and Value Appropriation
Carliss Y. Baldwin
Harvard Business School, Finance Unit
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
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
Date posted: December 12, 2011 ; Last revised: November 21, 2012
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