Competitor Collaboration and Product Distinctiveness

40 Pages Posted: 28 Aug 2006 Last revised: 15 Jun 2008

See all articles by Arghya Ghosh

Arghya Ghosh

UNSW Australia Business School, School of Economics

Hodaka Morita

Hitotsubashi University - Institute of Economic Research

Date Written: August 3, 2007

Abstract

Competitors often collaborate by sharing a part of their value-creating activities such as technology development, product design, and distribution, which are important elements for creating product distinctiveness across firms. This paper explores the economic consequences of competitor collaborations in the presence of a non-collaborator under the location framework, in which competitors can save on fixed costs by forming a collaboration. Although collaboration between competitors reduces the distinctiveness between their products, it increases the distinctiveness between their products and the non-collaborators' product. At the same time, intensified competition between collaborators lowers their prices and imposes downward pressure on non-collaborator's pricing strategy. The interaction between these two effects, together with the heterogeneity of consumers, yields rich welfare implications. Furthermore, we demonstrate that contrary to standard intuition, partial ownership arrangements could enhance consumers' welfare by inducing competitors to collaborate. Our analysis yields significant and novel welfare implications for competitor collaborations, which have recently attracted substantial attention from antitrust authorities.

Keywords: Antitrust, competitor collaboration, cooperative R&D, location model, oligopoly, partial ownership arrangement, product distinctiveness, strategic alliances, value chain

JEL Classification: D40, L10, L40, M20, M31

Suggested Citation

Ghosh, Arghya and Morita, Hodaka, Competitor Collaboration and Product Distinctiveness (August 3, 2007). Available at SSRN: https://ssrn.com/abstract=926488 or http://dx.doi.org/10.2139/ssrn.926488

Arghya Ghosh

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Hodaka Morita (Contact Author)

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

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