Competition or Coopetition? Technology Strategies for Incumbent and Entrant Firms

43 Pages Posted: 30 Sep 2020

See all articles by Chao Ding

Chao Ding

The University of Hong Kong - School of Business

Guofang Nan

Tianjin University - College of Management and Economics; Tianjin University

Shengli Li

Peking University

Date Written: August 14, 2020

Abstract

Many incumbent firms, when facing increasing threats from newcomers, choose to license their proprietary technologies to competitors. This paper investigates the motivation behind an incumbent firm’s strategy to open up its technology to a new entrant and the entrant’s decision to adopt the technology. We derive conditions under which the two firms compete or form a coopetition relationship. We find that, when both the technology-development capacity of the entrant and the technology-transformation rate in the technology-adoption process are high, the incumbent opens its proprietary technology, and the entrant adopts it. In the case of high technology-development capacity and relatively low transformation rate, however, the entrant should develop its own technological product. Further, given a low technology-development capacity and a high technology-transformation rate, the incumbent keeps its core technology closed, although the entrant prefers to adopt. We further verify the robustness of our results in an extension in which there are two potential entrants with differentiated technology-developing capacities.

Keywords: technology opening; competition and coopetition; technology-development capacity; technology-transformation rate; incumbent; entrant

Suggested Citation

Ding, Chao and Nan, Guofang and Li, Shengli, Competition or Coopetition? Technology Strategies for Incumbent and Entrant Firms (August 14, 2020). Available at SSRN: https://ssrn.com/abstract=3673683 or http://dx.doi.org/10.2139/ssrn.3673683

Chao Ding

The University of Hong Kong - School of Business ( email )

Pok Fu Lam
Hong Kong

Guofang Nan (Contact Author)

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

Tianjin University ( email )

92, Weijin Road
Nankai District
Tianjin, Tianjin 300072
China

Shengli Li

Peking University ( email )

No. 5 Yiheyuan Road
Peking University
Beijing, Beijing 100871
China

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