Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Wednesday, December 21, 2011

Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors

Posted by D. Daniel Sokol

Andrea Mantovani (Department of Economics, University of Bologna) and Francisco Ruiz-Aliseda (Department of Economics, Ecole Polytechnique) have written on Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors.

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.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/12/equilibrium-innovation-ecosystems-the-dark-side-of-collaborating-with-complementors-.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0162fc69c504970d

Listed below are links to weblogs that reference Equilibrium Innovation Ecosystems: The Dark Side of Collaborating with Complementors :

Comments

Post a comment