The choice of value‐based strategies under rivalry: Whether to enhance value creation or bargaining capabilities

Afonso Almeida Costa, Peter Zemsky

Research output: Contribution to journalArticlepeer-review

Abstract

The value‐based perspective emphasizes the importance of both value creation and bargaining for firm performance. While formal theoretical work has focused on value creation strategies, empirical evidence suggests that substantial performance differences also arise from heterogeneity in bargaining. We develop a model where rival firms choose value‐based innovation strategies to enhance either value creation or bargaining capabilities. We show a tendency for homogeneous strategy choices, with coordination on bargaining promoting firm value capture at the expense of overall industry value creation. We identify conditions for strategic heterogeneity, wherein a firm enhancing its bargaining capability risks the sustainability of its competitive advantage. Our model incorporates a natural distinction between incremental and radical value‐creating innovations, which influences the risk‐return tradeoffs faced by firms in their strategies.
Original languageEnglish
Pages (from-to)2020-2046
JournalStrategic Management Journal
Volume42
Issue number11
DOIs
Publication statusPublished - Nov 2021

Keywords

  • bargaining capability
  • biform games
  • firm heterogeneity
  • sustainability of competitive advantage
  • value-based innovation strategies

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