Delegation of Non‐Core Tasks and Market Expansion

ABSTRACT Software developers often spend a large part (40%–70%) of their time on non‐core tasks—tasks that do not directly add new product functionalities but are essential for a product's basic viability. A growing ecosystem of external providers now gives these developers the option to delegate such tasks, freeing resources for reallocation toward innovation and market expansion. We study how the cost of non‐core tasks, developers' ability to reallocate freed‐up resources into new product functionalities, and product substitutability jointly determine when competing developers in a duopoly benefit from delegating non‐core tasks in order to expand into a more advanced market. When developers compete on prices and make delegation decisions before provider pricing, both developers delegate when the reallocation efficiency and non‐core task costs are sufficiently high and product substitutability is not too high; neither delegates when both non‐core task costs and product substitutability are sufficiently low; otherwise, only one developer delegates. We also show that, counterintuitively, when one or both developers delegate, greater product substitutability or higher cost of non‐core tasks may increase developers' profits. Extensions show how these strategic effects depend on price versus quantity competition between developers, the market structure of external providers, and the timing of provider pricing and developers' delegation decisions.