Value Capture in Disintegrated Value Chains

The Hierarchy Strategy

Author: Alexander Hoffmann

Publisher: Springer Fachmedien Wiesbaden

Book Series : Innovation und Entrepreneurship

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

About this book

Using cooperative game theory, this book shows how bargaining structure affects the distribution of value among the constituent firms of the value chain. Results show that positions in the bargaining structure most conducive to value capture are those where large complementarity gains are realized and split, ideally, among a small number of negotiators. Further, leveraging case studies from the aviation and home appliance industries the author suggests that the bargaining structure can be shaped through by architecture of the value chain and, in turn, through the architecture of the product, and the action of powerful firms to optimize value capture.

Frontmatter

1. Introduction

Abstract

Discovering what determines a firm’s performance in an industry is a core endeavor of business research. While value is jointly created by a chain of firms that contribute to the production of a good or the provision of a service, it may be unevenly distributed among the participating firms. Scholars have approached the determinants of value capture from two different perspectives. While the resource-based view emphasizes ownership and control of critical resources as key to disproportional value capture (Barney 1986; Daft 1983), the market-based view focuses on the structural characteristics of the industry (Bain 1956; Porter 1980).

Alexander Hoffmann

2. Determinants of value capture

Abstract

This study focuses on the distribution of value within the value chain, therefore, I follow prior research (Bowman and Ambrosini 2000; Dedrick et al. 2010; Lepak et al. 2007) in defining value—more specifically, “value created”—as the difference between the costs of producing a certain good or providing a certain service and the price that buyers pay for the end product. In this chapter, I review the pertinent literature on value appropriation and bargaining, industry or value chain architecture as a determinant of value capture, and game theory perspectives.

Alexander Hoffmann

3. Bargaining structure

Abstract

I begin this chapter with an introduction of the notion of bargaining structure, which leads to the derivation of the research questions that aim to understand its determinants and effects.

Alexander Hoffmann

4. Modeling the effect of bargaining structure on value capture

Abstract

In order to understand value appropriation in a value chain, I model the bargaining over value as a cooperative game among the participating firms. As indicated in Section 2.3, a cooperative model is the best game theoretic approach for this research as it does not restrict the analysis to a mode of interaction among firms and a particular procedure of bargaining but assumes binding contracts. The following analysis is limited to value distribution under a given bargaining structure. The selection of firms that contribute to value creation, the cost of production, and the value that the value chain as a whole captures on the market are taken as given. The goal of this approach is to understand to what extent bargaining structure drives value capture and to derive strategies to enhance it.

Alexander Hoffmann

5. Drivers of bargaining structure and empirical implications of the hierarchy strategy

Abstract

While the last chapter showed that bargaining structure should matter for value capture, the present chapter examines the drivers of bargaining structures with an aim to understand if and how firms use them. As the position of a firm in the bargaining structure and the degree of hierarchy affects the share of value captured, firms should seek to influence the bargaining structure to their own advantage. However, it remains to be discussed whether firms actively shape the bargaining structure, which levers they apply, and if their action is in line with the hierarchy strategy. In an attempt to answer these questions I use a qualitative research approach with case studies examining the value chains and bargaining structures of laundry dryers produced by Bosch Siemens Hausgeräte GmbH (BSH) and of large passenger aircrafts, in particular the Airbus A350 and the Boeing 787 Dreamliner.

Alexander Hoffmann

6. Discussion and conclusion

Abstract

The analyses based on the game theoretic model in Chapter 4 indicate that the structure of negotiations along the value chain affects value distribution. Thus, besides considerations of replaceability, firms can aim to increase value capture by creating a beneficial bargaining structure. A bargaining structure is beneficial for a firm if it is positioned in those negotiations in which most complementarity gains are realized. In the commercial aircraft and laundry dryer industries, which are analyzed in the case studies, the OEMs’ capabilities and assets, such as customer access, final integration, and project management capabilities, are critical, scarce resources.

Alexander Hoffmann

Backmatter

Title: Value Capture in Disintegrated Value Chains
Author: Alexander Hoffmann
Publisher: Springer Fachmedien Wiesbaden
Electronic ISBN: 978-3-658-11368-1
Print ISBN: 978-3-658-11367-4
DOI: https://doi.org/10.1007/978-3-658-11368-1

Springer Professional

About this book

Table of Contents

Frontmatter

1. Introduction

2. Determinants of value capture

3. Bargaining structure

4. Modeling the effect of bargaining structure on value capture

5. Drivers of bargaining structure and empirical implications of the hierarchy strategy

6. Discussion and conclusion

Backmatter