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Value-Capture in the Face of Known and Unknown Unknowns

Author

Listed:
  • Kevin Bryan
  • Michael Ryall
  • Burkhard C. Schipper

    (Department of Economics, University of California Davis)

Abstract

A large theoretical literature on value capture following Brandenburger and Stuart (1996) uses cooperative games under complete information to study how and why firms earn supernormal profits. However, firms often have different information, beliefs, or creative foresight. We extend value capture theory to incomplete information (“known unknowns”) or unawareness (“unknown unknowns”), and illustrate some conceptual issues with that extension. Using the case study of Cirque du Soleil, we show how an entrepreneurial firm can profit even when it does not contribute materially to value creation. In a case study of Apple iTunes, we show how value capture depends quantitatively on the beliefs of other firms.

Suggested Citation

  • Kevin Bryan & Michael Ryall & Burkhard C. Schipper, 2019. "Value-Capture in the Face of Known and Unknown Unknowns," Working Papers 333, University of California, Davis, Department of Economics.
    • Handle: RePEc:cda:wpaper:333
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    File URL: https://repec.dss.ucdavis.edu/files/RKTVYH4bfSZqVsrv9aovVCa8/unawcgames26.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    cooperative games; unawareness; incomplete information; coarse core; business strategy; value-capture theory;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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