Platforms, Markets and Innovation

Platforms, Markets and Innovation

Edited by Annabelle Gawer

Annabelle Gawer presents cutting-edge contributions from 24 top international scholars from 19 universities across Europe, the USA and Asia, from the disciplines of strategy, economics, innovation, organization studies and knowledge management. The novel insights assembled in this volume constitute a fundamental step towards an empirically based, nuanced understanding of the nature of platforms and the implications they hold for the evolution of industrial innovation. The book provides an overview of platforms and discusses governance, management, design and knowledge issues.

Chapter 8: Protecting or Diffusing a Technology Platform: Tradeoffs in Appropriability, Network Externalities, and Architectural Control

Melissa A. Schilling

Subjects: business and management, strategic management, economics and finance, economics of innovation, industrial organisation, services, innovation and technology, economics of innovation

Extract

8. Protecting or diffusing a technology platform: tradeoffs in appropriability, network externalities, and architectural control Melissa A. Schilling INTRODUCTION In many high-technology markets, there are forces that create strong pressure for the selection of a single technology standard. This standard (or ‘dominant design’) may be embodied in a product design, the system architecture of a family of products (a ‘platform’), or the process by which products or services are provided (Tushman and Anderson, 1986; Utterback and Abernathy, 1975). Although there may have initially been many competing standards on offer, increasing returns to adoption can cause a minor advantage in the number of users to cause a positive feedback effect, resulting in a single technology achieving a nearly insurmountable advantage over all others (Arthur, 1989, 1994; Garud and Kumaraswamy, 1993; Schilling, 1998, 2002). This dynamic can lead to ‘winner-take-all’ markets that create natural monopolies. A firm that controls the standard can reap monopoly rents, and can exert significant architectural control over both its own and related industries (Ferguson and Morris, 1993; Henderson and Clark, 1990). This enviable position can be so lucrative that firms may be willing to lose money in the short term in order to improve their technology’s chance of rising to the position of dominant design. In fact, firms are sometimes extolled to liberally diffuse their technologies (through, e.g., open source or liberal licensing arrangements) in order to accelerate the technology’s proliferation and thereby jump-start the self-reinforcing feedback effect that can lead to the technology’s dominance (Lecocq and...

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