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Received: 4 June 2019 Accepted: 4 June 2019

DOI: 10.1002/smj.3054

COMMENTARY

Bottlenecks, cooperation, and competition in nascent


ecosystems

Douglas P. Hannah1 | Kathleen M. Eisenhardt2

1
McCombs School of Business, The
University of Texas at Austin, Austin,
Abstract
Texas Douglas P. Hannah and Kathleen M. Eisenhardt were rec-
2
School of Management Science and ognized as a runner up for the 2019 Ralph Gomory Best
Engineering, Stanford University, Stanford,
Industry Studies Paper Award.
California

Correspondence KEYWORDS
Douglas P. Hannah, McCombs School of competition, cooperation, ecosystems, Gomory award, industry studies
Business, University of Texas at Austin,
Austin, TX 78712.
Email: dph@utexas.edu

We are honored to have our paper, “How firms navigate cooperation and competition in nascent eco-
systems”, SMJ 39(12), 3163-3192, selected as an SMJ nominee and a runner-up for the 2019 Ralph
Gomory Best Industry Studies Paper Award from the Industry Studies Association. The Industry
Studies Association has a long history of supporting and recognizing exemplary industry studies
research, and we are honored to be included in such excellent company.
As the title suggests, our study investigated how firms intertwine cooperation and competition. It
emerged from a broader investigation of how entrepreneurial founders navigate the uncertainty and
ambiguity of nascent ecosystems. Ecosystems are settings in which firms produce discrete but com-
plementary products, and thus depend on one another to jointly create value (Adner, 2017; Kapoor,
2018). Our interest in this question was piqued (as research often is) by disconnects between the aca-
demic literature on ecosystems, which often emphasized capabilities and efficient exchange, and our
interviews with founders and executives, who did not.
Using theory-building methods and five cases in a racing research design, a core insight is the role
of bottlenecks in shaping the contours of effective strategies. Bottlenecks are components that con-
strain industry and firm growth due to their scarcity, poor quality, or weak performance (Baldwin,
2015). Our emergent theoretical framework identifies three strategies by which firms can succeed by
navigating bottlenecks within ecosystems. Each strategy has its own distinct pattern of cooperation
and competition as well as unique advantages and disadvantages.
One, which we termed the bottleneck strategy, was new to the literature. It involves hopscotching
across components as the industry evolves and bottlenecks move. This complex strategy requires a
dynamic balancing of the dialectic tension between competition and cooperation. In contrast, the
component strategy (i.e., enter the market for one component, cooperate for the rest) and system

Strat Mgmt J. 2019;1–3. wileyonlinelibrary.com/journal/smj © 2019 John Wiley & Sons, Ltd. 1
2 HANNAH AND EISENHARDT

strategy (i.e., enter the markets for multiple components, compete with rivals across the ecosystem)
are simpler and more static. They produce simple patterns of cooperation or competition respectively
that intensify over time. Finally, our theoretical framework also indicates ineffective strategies for
navigating ecosystems. These miss the interplay of cooperation and competition, and the critical role
of bottlenecks.
In the spirit of valuing in-depth industry research, our context deserves discussion. Our setting is
the U.S. residential solar industry. Despite ongoing innovation in solar panels, residential solar was
relatively staid for decades. From 1975 to 2005, for example, the United States saw just 30,000
cumulative installations. By 2014, however, this number exploded to 200,000 annual installations.
The key to unlocking this growth was the 2005 U.S. Energy Policy Act, which allowed firms (but
not homeowners) to claim a 30% tax credit on the purchase of home solar systems. This lowered the
effective cost of solar, while also introducing a valuable arbitrage opportunity. Firms responded with
a financial innovation: they began leasing, rather than selling, solar systems to homeowners. This
allowed them to claim the tax credits, which they bundled with the leases into portfolios and sold to
banks. This new model virtually eliminated the up-front cost of solar to homeowners, thus driving
massive industry growth. It also reshuffled the ecosystem, prompting entry by new actors, rewarding
new capabilities, and clouding the interdependencies among firms.
How did studying this context shape our thinking? When we embarked on our research, we had a
premonition that solar would be an intriguing setting. That said, we had no idea how utterly fascinat-
ing it would turn out to be: the pivotal role of bottlenecks, the complex interplay of cooperation and
competition, and the multiple, equifinal strategies all emerged. Our paper simply followed the story
that the data told. The openness of our informants, coupled with extensive media coverage, provided
a wealth of data from which to unpack strategies, identify constructs, and build theory. We also
benefited tremendously from studying passionate founders and executives. Solar is an industry of
evangelists. While not all are motivated by altruism (a dynamic that Doug explores in further
research with Andrea Caldwell and Tim Ott), they opened their doors to us, and often to one another
as well. The result is a rich ecosystem, with complex resource flows, collective action and shifting
coalitions, and a fascinating interplay of cooperation and competition.
If there is a lesson to be learned here, it is the value of embracing context and diving deep. The
constructs and theoretical relationships that emerged in our study, and the contributions we hope to
have provided to the research community, took shape as we sifted through our data. These data
opened our eyes to underlying theory that, we hope, sheds light and offers insight into broad issues
of interest wherever the interplay of competition and cooperation are central.
Finally, we had a very positive review and publication process. Our insightful editor for the SMJ
special issue on The Interplay of Competition and Cooperation, Werner Hoffmann, and two astute
reviewers pushed us (hard) to sharpen the logic of our theoretical framework and better ground it in
our data. They deserve much credit. We also benefited from the advice of the other fantastic special
issue editors (Dovev Lavie, Jeff Reuer, and Andrew Shipilov) as well as a productive (and fun!) con-
ference in Rome. To close, we are very grateful to the Industry Studies Association and to SMJ, and
optimistic about the continued role of in-depth industry studies for developing novel, generalizable,
and grounded theory.

R E F E REN CE S

Adner, R. (2017). Ecosystems as structure: An actionable construct for strategy. Journal of Management, 43(1),
39–58.
HANNAH AND EISENHARDT 3

Baldwin, C. (2015, May 27). Bottlenecks, modules, and dynamic architectural capabilities (Working Paper
No. 15–028). Harvard Business School.
Kapoor, R. (2018). Ecosystems: Broadening the locus of value creation. Journal of Organization Design, 7(1), 12.

How to cite this article: Hannah DP, Eisenhardt KM. Bottlenecks, cooperation, and
competition in nascent ecosystems. Strat Mgmt J. 2019;1–3. https://doi.org/10.1002/smj.3054