Competition or Coopetition? Technology Strategies for Incumbent and Entrant Firms

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.