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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2022 Annual Theme: Stakeholder Capitalism
Market-Based Solutions to Vital Economic Issues
Aug 1, 2019

Less Than the Sum Of Its Parts: Value In Coadoption Of Partial Substitutes


A core idea in competitive strategy is that a firm’s ability to capture value depends on the creation of value: maximizing the gap between willingness to pay and cost. This value can depend on or be enhanced through complementarity, where the willingness to pay for an offering is increased in the presence of another offering. Substitutability is assumed to have the opposite effect. This article defines demand conditions where the existence of partial substitutes may create opportunities to create and capture value. The model introduces a tension between maximizing the standalone value of an offering or maximizing value as part of a combination of offerings. This tension broadens the range of value-based strategies to include exclusion, co-adoption, supplementation, and displacement. By examining how buyers may consider combinations of offerings, it offers a new theoretical perspective on the nature of substitute competition.

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