Selling to Competitors? Competitive Implications of User-Manufacturer Integration

Henkel, J., Stiegler, A., Block, J. (2016) Selling to competitors? Competitive implications of user-manufacturer integration. In: D. Harhoff and K. Lakhani (eds.), Revolutionizing Innovation: Users, Communities, and Open Innovation. Festschrift in Honor of Eric von Hippel. MIT Press: Cambridge, MA

18 Pages Posted: 17 Oct 2011 Last revised: 25 Jan 2016

See all articles by Joachim Henkel

Joachim Henkel

TUM School of Management - Technische Universität München (TUM)

Annika Bock

Technische Universität München (TUM) - Faculty of Economics and Business Administration

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Date Written: October 16, 2011

Abstract

Firms that develop user innovations for their own use often find these innovations attractive to their competitors. Thus, the user innovator may consider vertical diversification, turning to manufacturing and selling its own innovation while keeping its original business as a user. The question of whether to become a supplier to competitors obviously is a critical one, as it can have detrimental effects on the competitive advantage of the innovator’s user unit. In this paper, we analyze this decision using two qualitative case studies and a game-theoretical model. We find that the user innovator’s decision to diversity depends on the intensity of competition in the user industry, the value that the innovation would create for other users, and the cost of imitation that other manufacturers would have to bear. It turns out, among other things, that commercialization may be the innovator’s best course of action even if it reduces its overall profits, since it may pre-empt market entry through imitation.

Keywords: user innovation, vertical integration, user-manufacturer innovator, commercialization of user innovations, user entrepreneurs

JEL Classification: L22, M10, O30

Suggested Citation

Henkel, Joachim and Bock, Annika and Block, Jorn Hendrich, Selling to Competitors? Competitive Implications of User-Manufacturer Integration (October 16, 2011). Henkel, J., Stiegler, A., Block, J. (2016) Selling to competitors? Competitive implications of user-manufacturer integration. In: D. Harhoff and K. Lakhani (eds.), Revolutionizing Innovation: Users, Communities, and Open Innovation. Festschrift in Honor of Eric von Hippel. MIT Press: Cambridge, MA, Available at SSRN: https://ssrn.com/abstract=1944847 or http://dx.doi.org/10.2139/ssrn.1944847

Joachim Henkel (Contact Author)

TUM School of Management - Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80333
Germany

Annika Bock

Technische Universität München (TUM) - Faculty of Economics and Business Administration ( email )

Arcisstr. 21
Munich, D-80290
Germany

Jorn Hendrich Block

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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