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Market-Based Solutions to Vital Economic Issues
Research
Jan 18, 2017

Open or Closed? Technology Sharing, Supplier investment, and Competition

Abstract

Competing technologies in emerging industries create uncertainties that discourage supplier investments. Open technology can induce supplier investments, but may also lead to intensified future competition. In this paper, we study competing manufacturers’ open-technology strategies. We show that despite the risk of intensifying future competition, open technologies by competing manufacturers may constitute an equilibrium and can indeed induce supplier investments. In addition, we identify a technology-risk-pooling benefit; namely, by opening technologies, competing manufacturers can induce supplier investments in both technologies and later adopt the one preferred by the market. However, manufacturers may also exhibit the prisoner’s dilemma and close their technologies despite the risk-pooling benefit. In this case, there is potential for collaborative technology sharing through cross licensing. Finally, we show that manufacturers may sometimes close their technologies to force supplier investments.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.


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