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    Wintel: Cooperation or Conflict
    05 Jul 2006Working Paper Summaries

    Wintel: Cooperation or Conflict

    by Ramon Casadesus-Masanell and David B. Yoffie
    Industries are becoming more horizontal. Products that used to be designed and manufactured by a single firm are now produced by different companies that must coordinate activities. Here, the authors detail the relationship between Intel and Microsoft (both integral to PCs) and, using a mixed-duopoly model, analyze the dynamics of cooperation verses competition. They find that costs associated with complementary R&D, conflicts of interest in pricing, and the possibility of competitors all factor in the decision of when to cooperate or compete. Key concepts include:
    • Complementary companies tend to compete on issues of price. For example, if one sells high (Intel's microprocessors) then another must sell low (Microsoft's software) in order for a product (a PC) to be able to sell at a profit.
    • Complementors should weigh the costs and benefits of encouraging competition in each others' spaces.
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    Author Abstract

    We study the incentives of complementors (producers of complementary products) to cooperate vs. compete and how these interact. In a system of complements, like the PC, the value of the final product depends on how well the different components work together. This, in turn, depends on the firms' investment in complementary R&D. We ask whether profit maximizing complementors will fully cooperate to make the final product as valuable as possible. Contrary to the popular view that two tight complements will generally have well aligned incentives, we demonstrate that natural conflicts emerge over pricing, the timing of investments, and who captures the greatest value at different phases of product generations.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: July 2005
    • HBS Working Paper Number: 05-083
    • Faculty Unit(s): Strategy
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    Ramon Casadesus-Masanell
    Ramon Casadesus-Masanell
    Herman C. Krannert Professor of Business Administration
    Unit Head, Strategy
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    David B. Yoffie
    David B. Yoffie
    Max and Doris Starr Professor of International Business Administration
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