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

Author

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  • Bin Hu

    (Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina 27599)

  • Ming Hu

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

  • Yi Yang

    (School of Management, Zhejiang University, Hangzhou, Zhejiang 310027, China)

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.

Suggested Citation

  • Bin Hu & Ming Hu & Yi Yang, 2017. "Open or Closed? Technology Sharing, Supplier Investment, and Competition," Manufacturing & Service Operations Management, INFORMS, vol. 19(1), pages 132-149, February.
    • Handle: RePEc:inm:ormsom:v:19:y:2017:i:2:p:132-149
    DOI: 10.1287/msom.2016.0598
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