ToS 2.2 – Cooperative Game Theory & the Added Value View (Summary)
ToS 2.2 – Cooperative Game Theory & the
Added Value View I (Fundamentals)
Oct 6, 2026 · @Nikki
Overview
Meeting 2.2 introduces the added value view: value is created by the whole chain of
suppliers, firm and buyers (cooperation), and each player can capture at most its added
value (competition). It gives exact definitions of value created and value appropriated,
and shows that Porter and the High Church RBV share one positional view of competitive
advantage.
Sources used for this summary
Source What it contributes
Lecture 4 slides (ToS 2.2, Stoelhorst) Big picture, formal logic, 5 market situations,
conceptual frameworks, Apple DRM case,
the Rumelt challenge
Brandenburger & Stuart (1996), Value-based Core paper: value created, WTP, opportunity
Business Strategy cost, added value, unrestricted bargaining, 4
value-based strategies
Brandenburger (2002), Porter's Added The five forces redrawn in added-value
Value: High Indeed! terms; generic strategies as routes to
positive added value
Ghemawat (1999), ch. 2 + Brandenburger & Value net, complementors, co-opetition,
Nalebuff (1995) via lecture PARTS
Your Notes on lectures (Lecture 4 and 5) + Lecture explanations, worked examples, key
Reading guide + Study guide concepts
Case meeting 3.2 (sums) + Lecture 5 slides Sum 1 (Rumelt) and Sum 2 — included here
as you asked
Key concepts in the study guide (2.2): cooperative game theory · value creation and
value appropriation · willingness-to-pay · opportunity costs · added value · zero-sum vs
win-win games · the value net · the PARTS model.
Page 1 of 21
,ToS 2.2 – Cooperative Game Theory & the Added Value View (Summary)
Study question 4: What are similarities and differences between Brandenburger's view of
strategy (Brandenburger & Nalebuff 1995; Brandenburger & Stuart 1996; Brandenburger
2002) and Porter's early view? An answer outline is in the Connections section.
Exam relevance: there will be a 'sum' on the exam that asks you to apply Brandenburger &
Stuart. The reading guide says to master added value above all, since it is the central tool
for the sums.
1. The big picture: from neoclassical economics to cooperative
game theory
Since the 1980s, industrial organization moved from a neoclassical approach (Bain-type
IO, Porter) to a game-theoretic approach (Lecture 4, slide 15). The added value view uses
cooperative game theory (CGT).
Where it sits in the course (Lecture 4, slide 10): Bain-type IO → Porter (positioning
school) · Ricardian logic → High Church RBV · both are reworked by the added value view,
which shows they rest on the same positional logic.
Cooperative vs non-cooperative game theory
Non-cooperative game theory Cooperative game theory
What must be All possible moves, their order Only what each coalition of players
specified and pay-offs can create
Example Prisoner's dilemma Brandenburger & Stuart's supplier–
firm–buyer game
Fits Highly structured situations 'Free-form', unstructured business
bargaining
The names mislead: CGT can study fierce competition, and non-cooperative theory can
study cooperation. The real difference is how much structure is imposed (Brandenburger
& Stuart 1996, footnote 3).
Neoclassical vs CGT (Lecture 4, slide 16)
Neoclassical economics Cooperative game theory
Economic profit Value appropriated
Prices are given (firms are price takers) Prices are negotiated (an outcome of
bargaining)
Page 2 of 21
, ToS 2.2 – Cooperative Game Theory & the Added Value View (Summary)
Neoclassical economics Cooperative game theory
Neoclassical equilibrium (Pareto Game-theoretic equilibrium ('the core')
efficiency)
A different point of view: cooperation and competition necessarily go hand in hand.
Players cooperate to bake the pie and compete to divide it — this is co-opetition.
A different dependent variable: 'Who gets what, and how?' CGT assumes value creation
and explains value appropriation.
Four central themes (Lecture 4, slide 19)
1. Coalitions — groups of players who transact together and create value.
2. Cooperation and competition — win-win games (value creation) and zero-sum games
(value appropriation).
3. Bargaining — competitive bargaining (based on competitive positions, i.e. outside
options) and pure bargaining (over the residual: persuasion, skills, fairness).
4. Favorable asymmetries — differences in added value (marginal contribution / marginal
product) between a firm and its rivals.
What is value? Customer value, shareholder value, collective welfare — the added value
view shows how these relate: they are all slices of one pie (see the figure in section 2).
2. Brandenburger & Stuart (1996): the formal logic
Value is created by a whole vertical chain (suppliers → firm → buyers), not by the firm
alone. A firm can capture value only if it has a positive added value, which requires a
favorable asymmetry versus other firms.
2.1 Value created
\text{Value created} = \text{Willingness-to-pay (WTP)} - \text{Opportunity
cost (OC)}
Willingness-to-pay — thought experiment: give the buyer the product for free, then
take money away until the buyer is indifferent to the original status quo. That amount is
the WTP. Example: an industrial buyer's WTP for a machine = the operating-cost
savings it brings.
Opportunity cost — the reverse: take the resource away from the supplier and give
money back until the supplier is indifferent. That amount is the OC. Example: an
employee's OC = the best alternative pay elsewhere.
Page 3 of 21
ToS 2.2 – Cooperative Game Theory & the
Added Value View I (Fundamentals)
Oct 6, 2026 · @Nikki
Overview
Meeting 2.2 introduces the added value view: value is created by the whole chain of
suppliers, firm and buyers (cooperation), and each player can capture at most its added
value (competition). It gives exact definitions of value created and value appropriated,
and shows that Porter and the High Church RBV share one positional view of competitive
advantage.
Sources used for this summary
Source What it contributes
Lecture 4 slides (ToS 2.2, Stoelhorst) Big picture, formal logic, 5 market situations,
conceptual frameworks, Apple DRM case,
the Rumelt challenge
Brandenburger & Stuart (1996), Value-based Core paper: value created, WTP, opportunity
Business Strategy cost, added value, unrestricted bargaining, 4
value-based strategies
Brandenburger (2002), Porter's Added The five forces redrawn in added-value
Value: High Indeed! terms; generic strategies as routes to
positive added value
Ghemawat (1999), ch. 2 + Brandenburger & Value net, complementors, co-opetition,
Nalebuff (1995) via lecture PARTS
Your Notes on lectures (Lecture 4 and 5) + Lecture explanations, worked examples, key
Reading guide + Study guide concepts
Case meeting 3.2 (sums) + Lecture 5 slides Sum 1 (Rumelt) and Sum 2 — included here
as you asked
Key concepts in the study guide (2.2): cooperative game theory · value creation and
value appropriation · willingness-to-pay · opportunity costs · added value · zero-sum vs
win-win games · the value net · the PARTS model.
Page 1 of 21
,ToS 2.2 – Cooperative Game Theory & the Added Value View (Summary)
Study question 4: What are similarities and differences between Brandenburger's view of
strategy (Brandenburger & Nalebuff 1995; Brandenburger & Stuart 1996; Brandenburger
2002) and Porter's early view? An answer outline is in the Connections section.
Exam relevance: there will be a 'sum' on the exam that asks you to apply Brandenburger &
Stuart. The reading guide says to master added value above all, since it is the central tool
for the sums.
1. The big picture: from neoclassical economics to cooperative
game theory
Since the 1980s, industrial organization moved from a neoclassical approach (Bain-type
IO, Porter) to a game-theoretic approach (Lecture 4, slide 15). The added value view uses
cooperative game theory (CGT).
Where it sits in the course (Lecture 4, slide 10): Bain-type IO → Porter (positioning
school) · Ricardian logic → High Church RBV · both are reworked by the added value view,
which shows they rest on the same positional logic.
Cooperative vs non-cooperative game theory
Non-cooperative game theory Cooperative game theory
What must be All possible moves, their order Only what each coalition of players
specified and pay-offs can create
Example Prisoner's dilemma Brandenburger & Stuart's supplier–
firm–buyer game
Fits Highly structured situations 'Free-form', unstructured business
bargaining
The names mislead: CGT can study fierce competition, and non-cooperative theory can
study cooperation. The real difference is how much structure is imposed (Brandenburger
& Stuart 1996, footnote 3).
Neoclassical vs CGT (Lecture 4, slide 16)
Neoclassical economics Cooperative game theory
Economic profit Value appropriated
Prices are given (firms are price takers) Prices are negotiated (an outcome of
bargaining)
Page 2 of 21
, ToS 2.2 – Cooperative Game Theory & the Added Value View (Summary)
Neoclassical economics Cooperative game theory
Neoclassical equilibrium (Pareto Game-theoretic equilibrium ('the core')
efficiency)
A different point of view: cooperation and competition necessarily go hand in hand.
Players cooperate to bake the pie and compete to divide it — this is co-opetition.
A different dependent variable: 'Who gets what, and how?' CGT assumes value creation
and explains value appropriation.
Four central themes (Lecture 4, slide 19)
1. Coalitions — groups of players who transact together and create value.
2. Cooperation and competition — win-win games (value creation) and zero-sum games
(value appropriation).
3. Bargaining — competitive bargaining (based on competitive positions, i.e. outside
options) and pure bargaining (over the residual: persuasion, skills, fairness).
4. Favorable asymmetries — differences in added value (marginal contribution / marginal
product) between a firm and its rivals.
What is value? Customer value, shareholder value, collective welfare — the added value
view shows how these relate: they are all slices of one pie (see the figure in section 2).
2. Brandenburger & Stuart (1996): the formal logic
Value is created by a whole vertical chain (suppliers → firm → buyers), not by the firm
alone. A firm can capture value only if it has a positive added value, which requires a
favorable asymmetry versus other firms.
2.1 Value created
\text{Value created} = \text{Willingness-to-pay (WTP)} - \text{Opportunity
cost (OC)}
Willingness-to-pay — thought experiment: give the buyer the product for free, then
take money away until the buyer is indifferent to the original status quo. That amount is
the WTP. Example: an industrial buyer's WTP for a machine = the operating-cost
savings it brings.
Opportunity cost — the reverse: take the resource away from the supplier and give
money back until the supplier is indifferent. That amount is the OC. Example: an
employee's OC = the best alternative pay elsewhere.
Page 3 of 21
