Discontinuities, Competition, and Cooperation: Coopetitive Dynamics between Incumbents and Entrants

Research Summary: We advance an integrative model in which distinct types of technological discontinuities (core knowledge vs. complementary-asset) are combined with different appropriability regimes (strong vs. weak) to predict competitive and cooperative dynamics between incumbents and entrants. We posit that incumbents ally with entrants following a core-knowledge discontinuity when the appropriability regime is strong. When the appropriability regime is weak, incumbents are more likely to acquire entrants. We submit that the additional consideration of complementary-asset discontinuities reveals a more integrated theoretical model of competition and cooperation between incumbents and entrants. In particular, incumbents tend to cooperate among themselves following complementary-asset discontinuities, although we highlight theoretical nuances due to different appropriability regimes. We provide falsifiable propositions, and introduce contingencies such as firm-level heterogeneity and time dynamics.

Managerial Summary: Interfirm cooperation is one possible avenue for existing firms to address the challenge of responding to discontinuous technological changes. What is not clear, however, is who should the incumbent ally with: other incumbents or new entrants? We provide an integrative framework to help managers to decide when to cooperate with competitors and when to cooperate with new entrants. When the core knowledge of incumbent firms is made obsolete by technological advances and intellectual property is fairly well protected, managers of existing firms should search out collaboration with new entrants. If intellectual property protection is weak, managers of incumbents firms are better off acquiring new entrants. When the downstream complementary knowledge such manufacturing and distribution are replaced by radically improved technologies, then incumbents best option is cooperate with other incumbents in order to compete against new entrants.

Frank T. Rothaermel (Ph.D.) is a Professor of Strategy & Innovation, holds the Russell and Nancy McDonough Chair of Business in the Scheller College at the Georgia Institute of Technology (GT), and is an Alfred P. Sloan Industry Studies Fellow. He received a National Science Foundation (NSF) CAREER award, which “is a Foundation-wide activity that offers the National Science Foundation’s most prestigious awards in support of … those teacher-scholars who most effectively integrate research and education.” (NSF CAREER Award description).

Frank’s research focuses on the intersection of strategy, innovation, and entrepreneurship. Based on having published papers in the top 1% based on citations, Thomson Reuters identified Frank as one of the “world’s most influential scientific minds.” He is listed among the top-100 scholars based on impact over more than a decade in both economics and business. Businessweek named Frank one of Georgia Tech’s Prominent Faculty in their national survey of business schools. The Kauffman Foundation views Frank as one of the world’s 75 thought leaders in entrepreneurship and innovation.