Sharing Knowledge to an Entrant for Production Investment Confronting COVID-19: Incentive Alignment and Lose-Lose Dilemma.

ABSTRACT

Facing the urgent demand of medical devices for COVID-19 treatment, many automakers have recently begun manufacturing ventilators, even though they are inefficient in production and uninformed of demand variability. To help them, some incumbent ventilator manufacturers have chosen to share knowledge, such as production techniques and demand information. Clearly, the incumbent ventilator manufacturers are fulfilling social responsibility, but is their knowledge sharing rewarding, especially when the automakers are entrant rivals? If possible, are win-win situations in the sense of social responsibility and firms' profitability identifiable? In this work, we develop a game-theoretic model in which an incumbent and an entrant ventilator manufacturer engage in two-dimensional competition in production investment and sales volume. We examine the incumbent manufacturer's profitability with and without knowledge sharing by formulating the tradeoffs among supply expansion, intensified competition, and the entrant's production efficiency improvement and demand variance reduction. We identify both "win-win" and "lose-lose" situations for the two competing manufacturers. Specifically, we find that free knowledge could be harmful for the entrant manufacturer, but the incumbent manufacturer benefits from knowledge sharing when market competition is intense, or when market competition is mild but the production investment efficiency varies.