Article ID: | iaor20132407 |
Volume: | 59 |
Issue: | 3 |
Start Page Number: | 659 |
End Page Number: | 676 |
Publication Date: | Mar 2013 |
Journal: | Management Science |
Authors: | Gaimon Cheryl, Kavadias Stylianos, Erat Sanjiv |
Keywords: | supply & supply chains |
In various industries end‐product manufacturers acquire core subsystems from upstream technology provider firms and focus primarily on efficient end‐product integration. We examine the strategic interactions between a technology firm that introduces a new subsystem and the respective end‐product manufacturers (‘integrators’). We analyze how the fraction of end‐product functionalities prepackaged into the subsystem impacts the optimal introduction strategy and the relative value appropriation power across the industries. Offering a subsystem that performs many end‐product functions has a dual effect on the provider's profits. On the positive side, the provider extracts a higher