Integration, which by definition involves own- ership, is distinguished from pure contractual modes in that it typically facilitates incentive alignment and control. If an innovator owns rather than rents the complementary assets needed to commercialize, then it is in a position to capture spillover benefits stemming from increased de- mand for the complementary assets caused by the innovation.
Indeed, an innovator might be in the position, at least before its innovation is announced, to buy up capacity in the complementary assets, possibly to its great subsequent advantage. If futures markets exist, simply taking forward positions in the complementary assets may suffice to capture much of the spillovers.
Even after the innovation is announced, the innovator might still be able to build or buy complementary capacities at competitive prices if he innovation has iron clad legal protection (i.e. if the innovation is in a tight appropriability regime). However, if the innovation is not tightly protected and once "out" is easy to imitate, then securing control of complementary capacities is likely to be the key success factor, particularly if those capaci- ties are in fixed supply - so called "bottlenecks." Distribution and specialized manufacturing com- petences often become bottlenecks.
As a practical matter, however, an innovator may not have the time to acquire or build the complementary assets that ideally it would like to control. This is particularly true when imitation is easy, so that timing becomes critical. Additionally, the innovator may simply not have the financial resources to proceed. The implications of timing and cash constraints are summarized in fig. 9.
Accordingly, in weak appropriability regimes innovators need to rank complementary assets as to their importance. If the complementary assets are critical, ownership is warranted, although if the