How a Firm’s Value Capture Affects Value Creation in Its Ecosystem

Abstract

Using a formal model, we develop a theory of how value capture by a firm with market or bargaining power dampens the incentives of other agents in its ecosystem, showing that the implications for value creation depend critically on the nature of the complementarities these agents generate. If complementarities are net positive, then dampening agents’ incentives can dramatically reduce the value created in the ecosystem, even to zero—that is, the prospect of a firm’s value capture may even prevent the firm itself from operating. Conversely, if complementarities are net negative, dampening agents’ incentives can increase value creation by discouraging agents from imposing these negative complementarities on each other. The disincentivizing effects of a firm’s value capture can be mitigated by enforceable contracts, cooperative governance, and self-organization by agents, but what is optimal for the agents or the firm may not be optimal for value creation in the ecosystem.