Incorporation of sticky information and product diversification into static game of open innovation

Abstract

Platform economics has promoted open innovation through sufficient channels to reveal and exchange knowledge with experts or valued customers. However, innovation also suffers from information stickiness and product diversification risks. In order to design an innovation strategy on a platform, this study incorporated these risks into game models of open innovation and proposed strategies to promote open innovation and welfare through equilibrium analysis. On the basis of the literature analysis of these risks, stochastic pay-off functions were constructed to regulate and stabilize the knowledge exchange flows. From equilibrium analysis of the game models, we conclude that: 1) stickiness and diversification are critical factors for open innovation on a platform; 2) at the beginning, a broad search is necessary to acquire diverse knowledge; at the middle stage, regulation of knowledge exchange is critical to achieving equilibrium and higher profits; and 3) global welfare could be elevated through adjustment of knowledge size and friction of communication.

Keywords

• Open innovation
• Platform economy
• Knowledge exchange
• Sticky information
• Product diversification