Appropriability Mechanisms and the Platform Partnership Decision: Evidence from Enterprise Software

  • Authors:

  • Peng Huang;Marco Ceccagnoli;Chris Forman;D. J. Wu

  • Affiliations:

  • Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742;Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308;Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308;Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308

  • Venue:
  • Management Science
  • Year:
  • 2013

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Abstract

We examine whether ownership of intellectual property rights IPR or downstream capabilities is effective in encouraging entry into markets complementary to a proprietary platform by preventing the platform owner from expropriating rents from start-ups. We study this question in the context of the software industry, an environment where evidence of the efficacy of IPR as a mechanism to appropriate the returns from innovation has been mixed. Entry, in our context, is measured by an independent software vendor's ISV's decision to become certified by a platform owner and produce applications compatible with the platform. We find that ISVs with a greater stock of formal IPR such as patents and copyrights, and those with stronger downstream capabilities as measured by trademarks and consulting services are more likely to join the platform, suggesting that these mechanisms are effective in protecting ISVs from the threat of expropriation. We also find that the effects of IPR on the likelihood of partnership are greater when an ISV has weak downstream capabilities or when the threat of imitation is greater, such as when the markets served by the ISV are growing quickly. This paper was accepted by Gérard P. Cachon, information systems.