The determinants of suboptimal technological development in the system company-component producers relationship

The paper analyses the behaviour of a hi.-h-tech system company in a model where her strategic variable is the choice of the contractual relationship with component producers. The system company develops an optimal contractual design separating component producers' qualities and providing optimal incentives to them. The particular features of the system company generate, however, a static and an intertemporal dilemma in her optimising behaviour. The static dilemma is between: (i) releasing property rights to component producers to increase their incentives and (ii) maintaining more control on 'strategic' components to improve her 'systemic' capacity. The intertemporal dilemma is about the optimal share of property rights on component products to maintain in a framework in which the 'strategic/non strategic' feature of individual components varies over time. Both static and intertemporal dilemmas have effects on the divergence between the system company optimum and the socially optimum level of technological development. (C) 2001 Elsevier Science B.V. All rights reserved.