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