Cozzolino & Rothaermel's Model of Competition and Cooperation

MODEL OF COMPETITION AND COOPERATION
AFTER TECHNOLOGICAL CHANGE
(COZZOLINO & ROTHAERMEL’S MODEL)
High-Level considerations prepared by Dr. Keith Sunderland
during the MSc at UCD Smurfit Graduate Business School
12.04.18
Cozzolino A., Rothaermel, F. T. (2018) 'Discontinuities, competition, and cooperation: Coopetitive dynamics
between incumbents and entrants'. Strategic Management Journal, 39 :1-33
https://doi.org/10.1002/smj.2776

Main Points (1)
• Research Basis
An integrative model in which distinct types of technological discontinuities
(core-knowledge vs. complementary-asset) are combined with different
appropriability regimes
o Core knowledge
 Strong appropriability regime – incumbents ally with entrants
 Weak appropriability regime – incumbents are likely to acquire entrants
Slide 1
Cozzolino & Rothaermel (2018)

Main Points (1)
• Research Basis
o Core knowledge
Prior literature focuses (mostly) on core-
knowledge discontinuities and highlighted
strategic alliances formed between incumbents
and new entrants (e.g. Rothaermel, 2001)
Slide 1

Main Points (1)
• Research Basis
o Core knowledge
o Complementary-asset
 While incumbents tend to cooperate amongst themselves following
complementary-asset discontinuities
• Further consideration in respect to appropriability regime…
Slide 1

Main Points (2)
• Advancements presented in this paper
• Novel predictions in the case of complementary asset discontinuities –
o Technological changes that do not devalue incumbent’s upstream core knowledge, but
rather their downstream complementary assets in manufacturing and distribution
• The paper posits that in the aftermath of this distinct technological change,
incumbents are more likely cooperate amongst themselves (horizontal
cooperative arrangements) rather than with new entrants
• A more holistic model of coopetive dynamics between incumbents and
entrants following different types of technological change
o How - the type of technological discontinuity and the affects the coopetive (industrial)
dynamics?
o When – (tech. discontinuity) induce cooperation between incumbents and incumbents;
cooperation between incumbents
o Why – firms compete and/or cooperate
Slide 2

Integration:
Tech. Discontinuity / Complementary Asset Discontinuity
Slide 3Industry-level dynamics of competition/cooperation following core-knowledge/complementary-asset discontinuitiesCozzolino & Rothaermel (2018)

 QI Steady-state competition
o Any new entrant is based on
incremental improvements in old-
line existing tech
 QII Schumpeterian competition
o A technological discontinuity that not
only devalues the incumbent’s core
knowledge – but also makes their
specialised complementary assets
irrelevant
Integration:
Slide 3

 QI Steady-state competition
o Any new entrant is based on
incremental improvements in old-line
existing tech
 QII Schumpeterian competition
o A technological discontinuity that not
only devalues the incumbent’s core
knowledge – but also makes their
specialised complementary assets
irrelevant
Value Chain
Downstream entrants have the
opportunity to set new standard for
distribution.
Upstream entrants can establish new
competitive positions imposing new
dominant designs for products
Incumbents and entrants
compete fiercely against
and among each other.
Few opportunities to
cooperate for incumbents
as their upstream
knowledge and
downstream assets are
destroyed
Few reasons to cooperate
as incumbents do not
have valuable
assets/competences to
protect.
Integration:
Slide 3

Integration:
Slide 4

• Interplay of competition and
cooperation
o QIII refers to the response of
incumbents to a core-knowledge
discontinuity (e.g. Rothaermel,
2001)
• Interfirm cooperation is the
preferred strategic response…
What about the influence of the
Appropriability regine?
Integration:
Slide 4

Integration:
Slide 5
Core-knowledge/complementary-asset discontinuities under
strong/weak appropriability regimes

QIIIa Core-knowledge discontinuity under a
strong appropriability regime
• the benefits to incumbent-new entrant alliances
outweigh their costs
Incumbents are more likely to form
strategic alliances with upstream entrants
introducing the new core tech rather than
with other incumbents
Integration:
Slide 5

QIIIa Core-knowledge discontinuity under a
weak appropriability regime
• New entrants exposed to imitation (e.g. EMI - CT
scanner)
• With a low appropriability regime,
Incumbents are more likely to acquire
upstream entrants and introduce the new
core tech. (rather than cooperate with
them)
Integration:
Slide 5

Integration:
Slide 6

Integration:
• Entrants are downstream –
introducing new complementary
assets
Slide 6

Integration:
assets
• Incumbents
o do not have an incentive to
cooperate with downstream
entrants
o are unlikely to develop new
specialised downstream
assets in isolation
 With entrants emerging as
platform leaders, an
incumbent in isolation is
unlikely to exploit externalities
to develop effective standards
Slide 6
… opposite to QII … incumbents lack
the new upstream core knowledge
(and entrants lack the specialised
downstream) Cozzolino & Rothaermel (2018)

Integration:
assets
• Incumbents
o do not have an incentive to
cooperate with downstream
entrants
o are unlikely to develop new
specialised downstream
assets in isolation
o are therefore more likely to
respond by cooperating
amongst themselves to
address the common threat
Slide 6

Integration:
Slide 7

Integration:
• Incumbents possessing upstream core
knowledge have little incentive to cooperate
with down stream entrants; cooperation
amongst themselves instead…
Incumbents are more likely to form
strategic alliances with other incumbents
rather than with downstream entrants
Slide 7

Integration:
• Likely a hybrid dynamic of competition and
competition
o Bargaining power
o Resource dependency and exposure to
technological uncertainties
Incumbents are more likely to form alliances
with other incumbents and also cooperate
with downstream entrants introducing the
new complementary asset(s) Slide 7

Firm-level heterogeneity
• Firm status
• High-status incumbents
o“… status of the former organisation [the high status incumbent] can decline
by transferring to the latter [the low-status partner]” (Podolny, 1993)
oWhen both incumbents are of high status:
 Synergies creating learning opportunities
 Cost and risk sharing benefits
 Mutual recognition in the market for being part of a select group – signalling
differentiated product value to potential buyers
High-status incumbents are more likely to form strategic alliances with other
high-status incumbents (rather than with high status downstream entrants)
Slide 8

Firm-level heterogeneity
• Low-status incumbents
oFrequently underperforming and are therefore more likely to take a risk of
partnering with unfamiliar firms
 Low-status incumbent & high-status (downstream) entrant)
• The low-status incumbent could technologically leap-frog high-status incumbents
• Could increase the perceived standing of the low-status incumbent
Low-status incumbents are more likely to form strategic alliances with a high-
status downstream entrant (rather than with high status incumbents)
Slide 8

Time dynamics & cooperative equilibria
• Following core-knowledge discontinuities
• Cooperative equilibrium between incumbents and entrants becomes less
stable as time progresses
• Incumbents and Entrants strive for vertical integration over time – in order to
enhance value capture
Incumbents are more likely to backwardly integrate by developing new core
technology
New entrants are more likely to forwardly integrate by building downstream
complementary-assets
Slide 9

Time dynamics & cooperative equilibria
• Following complementary-asset discontinuities
• A downstream entrant eventually succeeds in establishing a dominant
platform
• Why? - New entrants, in this regard
• do not have to worry about cannibalising existing business
• are not bothered by the difficulties of implementing architectural innovations
that span upstream core knowledge and downstream distribution
• Are producer neutral … likely to benefit from greater network externalities
(Over time) If a downstream entrant emerges as a platform leader, the
incumbents are more likely to enter strategic alliances with the platform
leader
(Over time) If incumbents succeed in jointly developing new complementary
assets, downstream entrants are likely to backwardly integrate [e.g. Netflix]
Slide 9

Paper - Takeaways
• An integrative technological
discontinuity model (core-
knowledge vs. complementary-
asset) combining different
• The type of technological
discontinuity and the strength of
the appropriability regime are
important antecedents in the
context of competition and
cooperation
Slide 10
• Firm-level variance (post
discontinuity time period) and
time dynamics as additional
dimensions of the conceptual
model
• Firm-level heterogeneity and the
role of status
• The reaction of incumbents and
entrants as time elapses after a
complementary-asset-
discontinuity

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