Rigorous Theories of Business Strategies in a World of Evolving Knowledge - Topics day 1

The question why some firms are more profitable than others is a long standing one in the field of strategy. It can be usefully analyzed for a static case (no changes over time) with the tool of cooperative game theory (MacDonnell and Ryall, 2004), and insights from this modeling align well with evidence from reality (Jacobides et al., 2006; Jacobides and Tae, 2009). Essentially, a firm that establishes a bottleneck position may appropriate value.
A stunning and interesting question is how industries change over time, how they can be shaped by strategic moves. Indeed, Jacobides et al (2006) even suggest that it may be more favorable for a firm to focus on wealth generation over time than on securing current profits. For example, in the interaction between Apple and the music publishers in 2002 regarding the iTunes portal, the publishers were mostly focusing on securing their current profits, while Apple was focusing on wealth creation, and, as an arguable consequence, reshaped the music industry.
Brandenburger and Stuart's (2007) biform games are pioneering work in modeling the shaping of industries. Here, a period of strategic interaction to shape a field is followed by a period of bargaining, modeled as a coalitional game. However, we are just at the very beginning of modeling the shaping of industry architectures that drive profit migrations over time. There are many battles that are fought over the later architecture of industries, involving many detailed decisions that require foresight regarding potential future complementarities among resources (Jacobides et al., 2006). A superior ability to foresee complementarities among resources may be one key skill that drives success in shaping a new business field. Unawareness structures in games may be applied to model asymmetric foresight abilities among interacting players that both cooperate and compete in shaping a business field.
Superior abilities in the shaping of business environments may also come about by being superiorly aware of the foresight abilities of other involved players and their putative belief evolution over time.
With tools that we wish to develop during the workshop (compare e.g. day 2), in particular games with unawareness and belief evolution we hope to make such dynamics analyzable.
Another exciting question is if we can calibrate formal models of value creation and appropriation based on coalitional game theory to actual data of profit distributions in industries in the real world. That is, we would work backwards and take an empirical profit distribution as given, and look for a coalitional game in which the given value coalitions would suggest this profit distribution as a solution. Do so generated value coalitions meaningfully relate to empirical observable elements of industries in reality?