Competitive Dynamics within and across Ecosystems

Category: Applied Microeconomics and Organization Seminar
When: 13 May 2020
, 14:00
 - 15:00

Titel: “Competitive Dynamics within and across Ecosystems” (with Ron Adner and Gaston Llanes)

Abstract: We study how two ex-ante identical firms compete to develop ecosystems over time in complex and uncertain environments. Each needs to initially gather the support of technical partners to perform a set of interdependent innovations that will result in a viable product only if all of them are successful. Several partners may try to perform each of the interdependent innovations, and each firm decides how to share eventual profit with successful innovators, effectively deciding how such partners collaborate and compete among them. If the product is successfully developed, a firm can enrich its ecosystem by gathering the support of commercial partners whose investments increase the commercial value of the firm's product. Such investments can be made before or after uncertainty about the product's demand is resolved. Our main findings are as follows. When demand uncertainty is "low," one of the firms gathers more support from technical partners and succeeds with greater probability in developing the complex product than the other. This happens because they all foresee that the firm will preemptively attract greater support from commercial partners even if their investments are made under uncertainty, thus shaping the competitive environment to its advantage and creating an intertemporal complementarity between technical investments and commercial investments. Endogenous ecosystem heterogeneity manifests in one of the firms fostering greater innovation and inducing a faster attraction of commercial support than the competing firm, sometimes even excluding it from the market. When demand uncertainty is "large," the strategy of attracting commercial support before uncertainty resolves is too costly, so no firm is willing to preemptively attract commercial partners before the other and both firms choose to wait. Anticipating that no firm can condition the other's behavior in the commercial stage to its advantage, both act symmetrically when gathering the technical support so ecosystems do not end up being heterogeneous. We further show that greater competition across ecosystems reduces competition within ecosystems, whereas ecosystem complexity makes ecosystems compete less fiercely between them and induce less competition among their respective technical partners.