Value creation and value capture with frictions

Abstract

We use a formal value-based model to study how frictions-incomplete linkages in the industry value chain that keep some parties from meeting and transacting-affect value creation and value capture. Frictions arise from search and switching costs and moderate the intensity of industry rivalry and the efficiency of the market. We find that firms with a competitive advantage prefer industries with less, but not zero, frictions. We show that rivalry interacts nontrivially with other competitive forces to affect industry attractiveness. Firm heterogeneity emerges naturally when we introduce resource development. Heterogeneity falls with frictions, but the sustainability of competitive advantage increases. Overall, we show that introducing frictions makes value-based models very effective at integrating analyses at the industry, firm, and resource levels. AbstractWe use a formal value-based model to study how frictions in the product market affect value creation and value capture. We define frictions as incomplete linkages in the industry value chain that keep some parties from meeting and transacting. Frictions, which arise from search and switching costs, vary across markets and over time as, for example, products commoditize and competition becomes more global. Importantly, frictions moderate the intensity of industry rivalry, as well as the efficiency of the market. We find that firms with a competitive advantage prefer industries with lower levels of frictions than their disadvantaged rivals. We show that the impact of rivalry on industry attractiveness cannot be analyzed independently of other competitive forces such as barriers to entry and buyer bargaining power. We introduce resource development in our model to study the emergence and sustainability of competitive advantage. Firm heterogeneity emerges naturally in our model. We show that the extent of firm heterogeneity falls with the level of frictions, but sustainability increases. Overall, we show that introducing frictions makes value-based models of strategy even more effective at integrating analyses at the industry, firm and resource levels.

Multi Sided Platforms (MSPs) Value Captation and Monetization Strategies: A Strategic Management Perspective

“…Potential platform owners leveraging a vendor relationship to get a leg up on competitors should critically examine whether their current customer base is sizable enough to ensure this advantage can provide a meaningful head start and whether other territories can be easily integrated into the same side of the platform (Wagner, et al, 2010;Chatain and Zemsky, 2011). Multiple authors emphasize the importance of network effects that are required for the adoption of the platform (Basole and Karla, 2012;Chen and Hit, 2005;Tuunainen et al, 2011).…”

“…Multiple authors emphasize the importance of network effects that are required for the adoption of the platform (Basole and Karla, 2012;Chen and Hit, 2005;Tuunainen et al, 2011). To begin with, the network effects are created when users are seeking compatibility with the other users (Farrell and Klemperer, 2007;Wagner, et al, 2010;Chatain and Zemsky, 2011). There is an emergence of economies of scope and economies of scale when more consumers purchase technologically compatible products (Verganti, 2009).…”

Criação de valor: incorporando elementos da economia dos custos de transação na visão porteriana

“…Desta forma, quanto mais econômica forem as transações, maior valor será criado na cadeia/sistema, garantindo a manutenção da vantagem competitiva através de lucros de curto e longo prazo (Shapiro et al, 1993). O gap no aparato porteriano ocorre quando os custos das transações entre as atividades não são considerados, o que modifica a estrutura da criação de valor, considerando que nenhuma transação é isenta de custos, uma vez que atividades possuem superfícies de contato imperfeitas que criam fricções, ou seja, links incompletos da cadeia de valor da indústria que mantêm algumas partes em contato, limitando a habilidade de encontrar alternativas estratégicas (Chatain & Zemsky, 2011). Então, deve participar da criação do valor total na cadeia, além dos elementos sugeridos no framework original, o custo dos elos conforme a equação 2, de onde se pode concluir que, mantendo-se o desempenho das atividades, quanto maior forem os custos dos elos menor será o valor total criado.…”

“…Ocorre que a competição na base das atividades fica restrita à eficácia operacional que expande o valor criado para todos os participantes da indústria, além de ser alvo para benchmarking, o que iguala as empresas entre si, tornando as atividades mais genéricas (Porter, 1999). Aqui os elos surgem como complemento à eficácia operacional das atividades sendo que existem, respectivamente, elos mais adequados para cada tipo de situação (Roodhoof & Warlof, 1999) e mais eficientes (Porter, 1999) para que, na integração vertical, os custos para adequar as fricções através da adoção de padrões sejam menores, estabelecimento da reputação e uso da tecnologia (Chatain & Zemsky, 2011).…”

The Equilibrating and Disequilibrating Effects of Entrepreneurship: Revisiting the Central Premises

“…Hence, the main contribution of this article is to refine existing theoretical propositions on the equilibrating and disequilibrating effects of entrepreneurship by introducing a computational model of entrepreneurship in the market process as described by the Austrian schools. To facilitate cumulative theory development, we build on a game theoretic toolbox recently gaining traction in the strategic management field (Adegbesan, ; Brandenburger and Stuart, ; Chatain and Zemsky, ; De Fontenay and Gans, ; Lippman and Rumelt, ; MacDonald and Ryall, ), referred to by Ryall () as the value capture model. Although the entrepreneurship and Austrian economics literatures have largely remained unconnected to the literature on the value capture model, Foss (: 53) refers to this toolbox as ‘the best existing analytical vehicle to choose to the extent that Austrians want to dress their arguments in more formal garb.’ We build particularly on the model recently outlined by Keyhani, Lévesque, and Madhok (), which is the first to bring the dynamics of the market process to the value capture model.…”