From Decanter to Bottleneck: How Industry Evolution and Governance Inseparability Shape Value Capture

This paper provides a contingent perspective on value capture in ecosystems, combining insights from industry evolution and governance inseparability literatures. We argue that ecosystem leaders that enter a nascent ecosystem with existing network of partners enjoy high initial bargaining power, whereas lacking these partners when entering results in lower initial bargaining power for the ecosystem leader. In the presence of governance inseparability, the lower initial bargaining power of the ecosystem leader translates into initial governance arrangements agreed with other parties that constrain the future ability of the ecosystem leader to capture a greater share of the aggregate value created. In this case, it will not be sufficient to control a bottleneck segment in the future for higher value capture. This effect is further pronounced if the ecosystem leader started when the industry that the ecosystem serves was in its maturity stage, denoting slowed technological progress and demand growth, thus fewer opportunities for ecosystem-wide value creation. Conversely, higher initial bargaining power can safeguard future ability to capture value, indicating that it is not necessary to control a bottleneck. We illustrate our framework by showing why ARM, a firm that is in control of an apparent bottleneck segment in the semiconductor ecosystem (IP licensing), fails to capture a high degree of value.