Definition
Industry Modularity refers to the organisation of a complex system into smaller independent modules, wherein each module performs a separate function while remaining compatible with the larger system. These modules connect through defined interfaces, which hide internal complexity and specify how each module interacts with the whole system. Modularity depends on specifiability, verifiability and predictability of interfaces.1
Commentary
Origin of the term
The concept of industry modularity is associated with Carliss Baldwin and Kim Clark's “The power of modularity today: 20 years of “Design Rules”, which explained how complex industries, specifically the computer industry, evolved from vertically integrated structures into modular clusters.2
Operation in Practice
In practice, industry modularity exists when a complex product or ecosystem is divided into modules governed by interface standards or design rules and the firms work on individual modules without controlling the whole system. Modules can be mixed and matched and thus create multiple design options, which is useful in decentralised innovation by allowing multiple market players to improve different modules simultaneously.3
Sector
Telecommunications, Platform ecosystems, Semiconductors, Cloud Computing, APIs etc.
Relevance vis-a-vis Competition Law
Industry modularity is relevant to antitrust jurisprudence as it can lower entry barriers. This is because firms need not build an entire product or ecosystem; they can engage and compete at the level of a single component or module. By supporting module-level competition, where specialised firms compete in APIs, components, or complementary products, modularity makes the industry structure horizontal and facilitates interoperability. However, if a dominant undertaking controls key APIs or interfaces, it can restrict accessibility and may lead to vertical integration as well.4
Related Nomenclature
Industrial Modularity, Interface-based competition, Modular Industry Structure
Clayton Christensen Institute, ‘Modularity Theory’ https://www.christenseninstitute.org/theory/modularity/ accessed 7 August 2026.↩︎
Stefano Brusoni and others, ‘The Power of Modularity Today: 20 Years of "Design Rules"' (2023) 32(1) Industrial and Corporate Change 1.↩︎
Mark Nottingham, 'Modularity: Enabling Interoperability and Competition' (mnot's blog, 10 May 2024) https://mnot.net/blog/2024/design-rules-vol-one accessed 7 August 2026.↩︎
Gerald A McDermott, Ram Mudambi and Ronaldo Parente, 'Strategic Modularity and the Architecture of the Multinational Firm' (2013) 3(1) Global Strategy Journal 1.↩︎
