Mol et al. (2005) "Value chain envy: Explaining new entry and vertical integration in popular music

18 important questions on Mol et al. (2005) "Value chain envy: Explaining new entry and vertical integration in popular music

Which concepts are employed to explain new entry and vertical integration?

  • Value creation
  • Value capture
  • Value protection

What does this paper aims to investigate?

The origins and the consequences of profit differentials among stages within a single value system

What is the central proposition advanced in this paper?

The desirablity of being located at a particular stage of the value system is determined by the ratio between captured and created value at that particular stage
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When can actors experience value chain envy and be motivated to vertically integrate into desirable stage?

If firms at a given stage tend to capture more value than they create.

What happens when actors from outside experience value chain envy?

This will trigger new entry into the value system.

Where depends the feasibility of both these strategic responses on?

On how well value is protected

How is value creation defined?

As the contribution to the utility of the final good to end users

How is value capture defined?

The difference between revenue and cost retained by the buyer downstream

On which two axes can a firm being considered as being engaged in competition?

  • Horizontally
  • Vertically

How can a firm horizontally being engaged in competition?

By preventing competitive imitation of this value creating activity through value protection

How can a firm vertically being engaged in competition?

By realizing profits from this value creating activity through value capture

What is mainly a horizontal activity?

Protecting value, as it is concerned with preventing competitive imitation of (potential) competitors.

What is mainly a vertical dimension of the value system?

Capturing value (like creating) value

Where does capturing value/creating value depend on?

On the bargaining power vis-à-vis neighboring stages
  • Buyers downstream
  • Suppliers upstream

What is the outcome of the competitive processes taking place among firms with dissimilar value chains located at different stages of the value system?

The amount of value being captured at the respective stages of the value system

Where are profits ultimately made?

Vertically and not horizontally, as the product passes through the sequence of supplier-buyer relationships that make up the value system

When is the value system said to be out of equilibrium?

When one or more stages have a ratio of value capture to value creation that is greater than 1.

In which industry are the propositions tested?

In the record music industry, multiple phases in recorded music industry:
  • Prior to recorded music
  • Recorded music
  • Music-publishing and value chain envy
  • Vertical integration and new entry in music publishing
  • Digitized music 

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