The pricing and profitability of modular clusters
By: Carliss Y. Baldwin, Kim B. Clark, C. Jason Woodard
Contributors: Clark, Kim B.; Woodard, C. Jason; Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 04-006; Working paper (Harvard Business School. Division of Research) -- 04-006
Publisher: Division of Research, Harvard Business School
Published: 2003
Place of publication: Boston
Language: eng
Number of pages: 63
Description: The last twenty years have witnessed the rise of disaggregated clusters or networks of firms. In these clusters the activities ofR&D, product design, production, logistics and selling may be split up among hundreds or even thousands of firms. Different firms will design and produce the different modules of a complex artifact (like the processor, peripherals, and software of a computer system), and different firms will specialize in different stages of a complex production process. This paper considers the pricing behavior and profitability of such clusters. In particular, we investigate a possibility hinted at in prior work: that pressures to raise prices across complementary-goods markets can offset pressures to reduce prices within oligopolistic differentiated-goods markets. In this paper, we isolate the offsetting price effects and show how they might operate in large as well as small clusters. We argue that it is theoretically possible for a modular cluster of firms to mimic the pricing behavior and profitability of one big firm.
Notes: "Version 2.0, August 1, 2003."

Includes bibliographical references.