Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors

31 Pages Posted: 24 Nov 2011

See all articles by Francisco Ruiz-Aliseda

Francisco Ruiz-Aliseda

Pontifical Catholic University of Chile

Andrea Mantovani

University of Bologna

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2011

Abstract

The recent years have exhibited a burst in the amount of collaborative activities among firms selling complementary products. This paper aims at providing a rationale for such a large extent of collaboration ties among complementors. To this end, we analyze a game in which the two producers of a certain component have the possibility to form pairwise collaboration ties with each of the two producers of a complementary component. Once ties are formed, each of the four firms decides how much to invest in improving the quality of the match with each possible complementor, under the assumption that a firm with a collaboration link with a complementor puts some weight on the complementor’s profit when making investment decisions. Once investment choices have taken place, all firms choose prices for their respective components in a noncooperative manner. In equilibrium, firms end up forming as many collaboration ties as it is possible, although they would all prefer a scenario where collaboration were forbidden. In addition, a social planner would also prefer such a scenario to the one arising in equilibrium. We show that the result that collaboration is inefficient for firms and society does not depend on whether collaboration ties are formed in an exclusive manner: in fact, exclusivity would only worsen the situation.

Keywords: Systems Competition, Complementary Products, Interoperability, Collaboration Link, Co-opetition, Exclusivity

JEL Classification: L13, M21

Suggested Citation

Ruiz-Aliseda, Francisco and Mantovani, Andrea, Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors (October 1, 2011). NET Institute Working Paper No. 11-31. Available at SSRN: https://ssrn.com/abstract=1958083 or http://dx.doi.org/10.2139/ssrn.1958083

Francisco Ruiz-Aliseda

Pontifical Catholic University of Chile ( email )

Vicuna Mackenna 4860
Santiago, 99999
Chile

Andrea Mantovani (Contact Author)

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy

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