Sharing Knowledge to an Entrant for Production Investment Confronting COVID-19: Incentive Alignment and Lose-lose Dilemma
Posted: 2 Nov 2020
Date Written: October 29, 2020
Facing the urgent demand of medical devices for COVID-19 treatment, many automakers have recently begun manufacturing ventilators, even though they are inefficient in production and uninformed of demand variability. To help them, some incumbent ventilator manufacturers choose to voluntarily share knowledge such as production techniques and demand information. Clearly, the incumbent ventilator manufacturers are fulfilling social responsibility, but whether their knowledge sharing is rewarding, especially when the automakers are entrant rivals? If possible, whether win-win situations in senses of social responsibility and firms’ profitability can be identified? We therefore develop a game-theoretic model where an incumbent and an entrant ventilator manufacturer engage in two-dimensional competition in production investment and sales volume. We examine the incumbent manufacturer’s profitability with and without knowledge sharing by formulating the tradeoffs among supply expansion, intensified competition, and the entrant’s production efficiency improvement and demand variance reduction. We identify both “win-win” and “lose-lose” situations for the two competing manufacturers. Specifically, we find free knowledge may be harmful for the entrant manufacturer, but the incumbent manufacturer benefits from knowledge sharing when market competition is intense, or, market competition is mild but the production investment efficiency varies.
Keywords: Knowledge sharing; Production investment; Competition and cooperation; Incentive analysis
Suggested Citation: Suggested Citation