Management Science and Information Systems' Seminar（2017-03）

Topic: Strategic Intellectual Property Sharing: Competition on an Open Technology Platform Under Network Effects

Speaker: D. J. Wu, Georgia Institute of Technology

Time: Wednesday, March 22, 13:00-14:30

Place: Room K01, No.2 Guanghua Building

Abstract:

In this paper, we explore the strategic decision of an incumbent to open a proprietary technology platform in order to allow same-side co-opetition in a market characterized by network effects. We propose a novel model that, to the best of our knowledge, is the first attempt to analytically conceptualize in this context the interplay among the degree of same-side platform openness, the absorptive capacity of the entrant, and the intensity of network effects. Our analysis uncovers interesting and non-trivial results. First, when quality is exogenous for the entrant, we find that if the intensity of network effects is very strong then the incumbent prefers to close the technology. Moreover, we discuss various interesting open-platform co-opetition outcomes that arise in parallel with a full market coverage. When the entrant chooses the quality level and the incumbent is strategic in its platform opening decision, we find that intense network effects make new players shun the market so IP-sharing is not possible in equilibrium. When the network effects are of intermediate intensity, the incumbent opens the technology to the entrants who possess a sufficiently high absorptive capacity, calibrating the amount of sharing to the entrant's absorptive capacity level to ensure that the duopoly setting is mutually beneficial. In an extension, we also explore the ability of the incumbent to engineer the strength of network effects in the market. When the incumbent finds it optimal to open its core technology, we observe non-trivial alternating-monotonicity patterns for the intensity of network effects with respect to the entrant's absorptive capacity, revealing complex interplay dynamics between the entrant's cost to join the market and the value of the network to the users. Moreover, we show that a model with exogenous network effects could drastically underestimate the range of entrants' absorptive capacity values for which the incumbent should open its platform. This may lead to sub-optimal blocking of certain firms from the market, causing the incumbent to miss out on valuable co-opetition opportunities.

Introduction:

D. J. Wu is a Professor and Area Coordinator in Information Technology Management at the Scheller College of Business, Georgia Institute of Technology. He received his Ph.D. from the Wharton School, University of Pennsylvania. Dr. Wu's current research interests include digital business models, enterprise software platforms, contracting and procurement auctions, and economics of cloud computing.

Dr. Wu's recent work has been published in premier academic journals including Management Science, Information Systems Research, Manufacturing and Service Operations Management (M&SOM), and MIS Quarterly. Dr. Wu’s research won the “Best Paper in Valuing IT Opportunities” award, the “Best Paper in Web-Based Information Systems and Applications” award at the 2006 International Conference on Information Systems (ICIS), and the Runner-Up Best Conference Paper Award at the 2009 ICIS. He received the Linda and Lloyd L. Byars Award for Faculty Research Excellence in 2013 and in 2017, Scheller College of Business, Georgia Institute of Technology. Dr. Wu won the 2014 Dean's Award for Teaching Excellence as well as the 2016 Class of 1940 Course Survey Teaching Effectiveness Award.

Dr. Wu serves on the editorial boards of two premier academic journals: as an associate editor for Management Science (IS), and as a senior editor for Production and Operations Management (Management of Technology). He also served as an associate editor for Manufacturing and Service Operations Management (2010-2014). Dr. Wu received the Management Science Editor-in-Chief Certification of Appreciation in 2008, and the Management Science Associate Editor Meritorious Service Award in 2010, 2013 and 2014. In addition, Dr. Wu received the Manufacturing and Service Operations Management (M&SOM) Associate Editor Meritorious Service Award in 2014.

Your participation is warmly welcomed!