The ecosystem penalty : value creation technologies and incentive misalignment

When are the incentives of a business ecosystem’s participants aligned with its growth? How is the technology of value creation affecting this alignment? To answer these questions we formally model how value creation determines value capture in a business ecosystem. We find that alignment is typically imperfect compared to an integrated benchmark, highlighting an “ecosystem penalty” whereby participants’ returns to value creation are lower than that of the ecosystem. The occurrence of this penalty depends on whether the technology is loosely coupled (value additive in inputs), exhibits bottlenecks (value constrained by the weaker input), or is strongly supermodular (value multiplicative in inputs). Contrary to conventional wisdom, we find it can be severe for the participants who are constraining the system the most