Modeling interactions between user and producer innovation: User-contested and user-complemented markets
Christina Raasch, Eric A. von Hippel · 2012
There are two ways to diffuse innovations: for free via peer-to-peer channels, and at a price via channels. In this paper, we consider the effects of rivalry and complementarity between these two important innovation diffusion channels. When innovations that are close substitutes are diffused via both channels, producers face a rival that has rarely been considered in competitive analyses: the option for users to self-supply. We show that this additional option - a user-contested market - exerts price discipline on producers, and increases social welfare. We find that users can, under some conditions, exert greater competitive pressure than can rival producers. Innovations diffused peer-to-peer are often useful or essential complements to products diffused via the - a user-complemented market. For example, a product may be sold on the market, while techniques for operating that product may be diffused peer-to-peer. We show that producers of essential components can extract value from complements created and diffused by users. In many cases, producers will prefer their complementors to be users