Value Network Competition and Information Technology

Abstract

A defining feature of digital transformation (the digitization of business and economy) is that networks of firms, instead of individual firms, are competing with each other. While competition shifts from the level of firm to the level of networks, it is not well understood how value networks compete. This article makes a conceptual and analytical contribution to this gap in the literature. Introducing the concepts of overlapping and non-overlapping network competition, the article analyzes network competition in a setting where firms invest in intangibles or non-contractibles, such as knowledge sharing and innovation. One main finding is that as non-contractibles become more valuable to end-consumers the industry structure is more likely to shift to competition among non-overlapping value networks. The paper proposes that IT affects network competition through the reduction of cost of investment in non-contractibles and the evolution of consumer preferences.

Keywords: Value networks, Business Ecosystems, Platforms, Network Strategy, Incomplete Contracts, Information Sharing, Digital Transformation

JEL Classification: L10, L11, L13, L14