ToS 3.1 – Added Value View II: Applications
ToS 3.1 – Added Value View II: Applications
Oct 6, 2026 · @Nikki
Overview
Session 3.1 turns the added value view from meeting 2.2 into a tool: after it you can solve
the exam ‘sum’ with the logic of Brandenburger & Stuart (1996). Its core message is that
competition bounds what each player can capture, and that whatever competition leaves
open is divided by pure bargaining.
Sources used in this summary
Lecture slides 3.1 – “The ‘Added Value’ View: Applications – Recap and introduction”
(Lecture 5.ppt): basic ideas, the three principles, the five market situations, principles
of strategy.
Slides “How CGT helps integrate Porter and the RBV” (CGT with Porter and
RBV.pptx): definitions of competitive advantage, favorable asymmetries.
Slides “Sum I” (Sum 1 part 1.pptx) and Case meeting 3.2 (sums): the Rumelt (2003)
exam sum and practice question 2.
Article – Gans & Ryall (2017), Value Capture Theory: A Strategic Management Review
(read up to p. 34; skip p. 28).
Your notes – Notes on lectures (lectures 4–5) and the Reading guide.
Study guide – key concepts for 3.1 (feasibility, stability, adding-up) and study question
5.
Where it fits in the course: Bain-type IO → Porter → Ricardian logic → High Church RBV →
added value view (2.2 fundamentals, 3.1 applications) → stakeholder view (3.2). The
added value view integrates Porter and the RBV and makes both more precise; 3.2 then
drops the unitary-agent assumption and uses pure bargaining inside the firm.
1. The big picture: cooperate to create, compete to divide
Players in a vertical chain (buyers, firm, suppliers) cooperate to create a pie and compete
to divide it (Lecture 5, slide 10).
Value created (the pie): the surplus agents create together over what they could
create outside the game = WTP – opportunity cost.
Competitive bargaining: bargaining based on competitive positions (outside options)
may guarantee some players a minimum share.
Page 1 of 16
,ToS 3.1 – Added Value View II: Applications
Pure bargaining: the remainder of the pie (if any) is divided by non-economic factors –
bargaining skill, persuasion, fairness norms, perceptions.
Added value = the drop in value created when a player leaves the game (its “marginal
product”). It is the maximum that player can appropriate.
Neoclassical reasoning vs. cooperative game theory (slide 8)
Neoclassical economics Cooperative game theory (CGT)
Economic profit Value appropriated
Prices are given (price takers) Prices are negotiated (an outcome)
Neoclassical equilibrium Game-theoretic equilibrium (“the core”)
value created and appropriated · Lecture 5, slides 13 and 31
Read it bottom-up: suppliers get at least their opportunity cost, buyers pay at most their
WTP. Product and factor market competition fix consumer surplus and rents; the firm’s
economic profit is the residual – the part that is open to pure bargaining. (This picture
comes back in 3.2, where the firm is a governance structure for team production.)
2. The three principles (key concepts of 3.1)
These three principles decide whether you can give an exact price or only a price range
(Lecture 5, slide 11; Gans & Ryall 2017, eq. 1, eq. 2 and GP2).
Page 2 of 16
, ToS 3.1 – Added Value View II: Applications
Principle What it says (slides 3.1) Formal version (Gans & Use in a sum
Ryall)
Feasibility All of the pie must be Sum of all πi = V (eq. 1) Shares of buyers +
allocated, and the firms + suppliers must
pieces together cannot add up to the value
exceed the pie. created.
Stability If a coalition has a For every group G: sum of Rules out prices at
division of the pie, but a πi in G ≥ v(G) (eq. 2, which someone would
player can make a “competitive switch partners →
better offer elsewhere, consistency”) gives the lower and
the coalition is unstable upper limit of the
and a new one forms. price.
Adding- If the added values of If sum of av_i = V, then Check: Σ added values
up all players sum to the every player captures = value created? Yes →
value created, you can exactly its added value one price. No (Σ > V) →
give an exact price (GP2) a range.
(otherwise only an
interval).
Feasibility + stability together define the core: the set of all “competitive” divisions of the
pie.
Two kinds of bargaining
Competitive bargaining – bargaining based on competitive positions (who can switch
to whom). It sets the bounds: a guaranteed minimum for some players. Example: in a
monopoly, two buyers bid against each other until the price hits their WTP of 100.
Pure bargaining – divides the residual that competition leaves open. Its outcome
depends on non-economic factors: bargaining skill, persuasion, reputation, fairness,
perceptions. Example: one buyer (WTP 100) and one seller (cost 60) – any price
between 60 and 100 is possible.
In Gans & Ryall’s terms: competitive bargaining is driven by competitive resources, pure
bargaining by persuasive resources (Insight 4).
3. The five basic situations (every exam sum is a combination of
these)
Every ‘sum’ is one or a combination of five situations (Lecture 5, slide 32). The method is
always the same: (1) value created, (2) added value of each player, (3) check adding-up,
(4) derive the price or price range using stability. Assume no collusion unless stated.
Page 3 of 16
ToS 3.1 – Added Value View II: Applications
Oct 6, 2026 · @Nikki
Overview
Session 3.1 turns the added value view from meeting 2.2 into a tool: after it you can solve
the exam ‘sum’ with the logic of Brandenburger & Stuart (1996). Its core message is that
competition bounds what each player can capture, and that whatever competition leaves
open is divided by pure bargaining.
Sources used in this summary
Lecture slides 3.1 – “The ‘Added Value’ View: Applications – Recap and introduction”
(Lecture 5.ppt): basic ideas, the three principles, the five market situations, principles
of strategy.
Slides “How CGT helps integrate Porter and the RBV” (CGT with Porter and
RBV.pptx): definitions of competitive advantage, favorable asymmetries.
Slides “Sum I” (Sum 1 part 1.pptx) and Case meeting 3.2 (sums): the Rumelt (2003)
exam sum and practice question 2.
Article – Gans & Ryall (2017), Value Capture Theory: A Strategic Management Review
(read up to p. 34; skip p. 28).
Your notes – Notes on lectures (lectures 4–5) and the Reading guide.
Study guide – key concepts for 3.1 (feasibility, stability, adding-up) and study question
5.
Where it fits in the course: Bain-type IO → Porter → Ricardian logic → High Church RBV →
added value view (2.2 fundamentals, 3.1 applications) → stakeholder view (3.2). The
added value view integrates Porter and the RBV and makes both more precise; 3.2 then
drops the unitary-agent assumption and uses pure bargaining inside the firm.
1. The big picture: cooperate to create, compete to divide
Players in a vertical chain (buyers, firm, suppliers) cooperate to create a pie and compete
to divide it (Lecture 5, slide 10).
Value created (the pie): the surplus agents create together over what they could
create outside the game = WTP – opportunity cost.
Competitive bargaining: bargaining based on competitive positions (outside options)
may guarantee some players a minimum share.
Page 1 of 16
,ToS 3.1 – Added Value View II: Applications
Pure bargaining: the remainder of the pie (if any) is divided by non-economic factors –
bargaining skill, persuasion, fairness norms, perceptions.
Added value = the drop in value created when a player leaves the game (its “marginal
product”). It is the maximum that player can appropriate.
Neoclassical reasoning vs. cooperative game theory (slide 8)
Neoclassical economics Cooperative game theory (CGT)
Economic profit Value appropriated
Prices are given (price takers) Prices are negotiated (an outcome)
Neoclassical equilibrium Game-theoretic equilibrium (“the core”)
value created and appropriated · Lecture 5, slides 13 and 31
Read it bottom-up: suppliers get at least their opportunity cost, buyers pay at most their
WTP. Product and factor market competition fix consumer surplus and rents; the firm’s
economic profit is the residual – the part that is open to pure bargaining. (This picture
comes back in 3.2, where the firm is a governance structure for team production.)
2. The three principles (key concepts of 3.1)
These three principles decide whether you can give an exact price or only a price range
(Lecture 5, slide 11; Gans & Ryall 2017, eq. 1, eq. 2 and GP2).
Page 2 of 16
, ToS 3.1 – Added Value View II: Applications
Principle What it says (slides 3.1) Formal version (Gans & Use in a sum
Ryall)
Feasibility All of the pie must be Sum of all πi = V (eq. 1) Shares of buyers +
allocated, and the firms + suppliers must
pieces together cannot add up to the value
exceed the pie. created.
Stability If a coalition has a For every group G: sum of Rules out prices at
division of the pie, but a πi in G ≥ v(G) (eq. 2, which someone would
player can make a “competitive switch partners →
better offer elsewhere, consistency”) gives the lower and
the coalition is unstable upper limit of the
and a new one forms. price.
Adding- If the added values of If sum of av_i = V, then Check: Σ added values
up all players sum to the every player captures = value created? Yes →
value created, you can exactly its added value one price. No (Σ > V) →
give an exact price (GP2) a range.
(otherwise only an
interval).
Feasibility + stability together define the core: the set of all “competitive” divisions of the
pie.
Two kinds of bargaining
Competitive bargaining – bargaining based on competitive positions (who can switch
to whom). It sets the bounds: a guaranteed minimum for some players. Example: in a
monopoly, two buyers bid against each other until the price hits their WTP of 100.
Pure bargaining – divides the residual that competition leaves open. Its outcome
depends on non-economic factors: bargaining skill, persuasion, reputation, fairness,
perceptions. Example: one buyer (WTP 100) and one seller (cost 60) – any price
between 60 and 100 is possible.
In Gans & Ryall’s terms: competitive bargaining is driven by competitive resources, pure
bargaining by persuasive resources (Insight 4).
3. The five basic situations (every exam sum is a combination of
these)
Every ‘sum’ is one or a combination of five situations (Lecture 5, slide 32). The method is
always the same: (1) value created, (2) added value of each player, (3) check adding-up,
(4) derive the price or price range using stability. Assume no collusion unless stated.
Page 3 of 16
