Contents
Title
Value Creation vs Value Appropriation: Network Externalities for Auto-Dipper
Author
Rajnandan Patnaik
Classification JEL
M13, M30
Abstract
A firm’s competitiveness is deeply engrained in its offering. It is important to understand the competition, the market requirement, production-operations and the value of its offering. Moreover, to ensure survival of the firm, it is essential to ascertain the plausible source of competitive advantage, the obvious being its value offering. Most firms face the necessity to not only creates value for its customer, but also to appropriate value for itself. This paper takes the case of Auto-Dipper and tests the issues of value-creation and its appropriation in the practical perspective of business strategy, through the concept of network externality. The Auto-Dipper is an optical-mechanical device that automatically puts the vehicle headlights to lower beam when it encounters an oncoming vehicle in the night. The glare of oncoming headlights puts the driver to light blinding which increases the chance of an accident. Further, as most of the Indian roads are two-way and the frequency of oncoming vehicle is very high, the driver is severely fatigued after a night drive, raising the accident chances. The product passes through stringent field trials and the price is affordable for the market. The ministry of surface transport of the Government has made the product mandatory for all four wheelers and other heavy vehicles. Further, the product is patented and has a seemingly ready market. However, the product is still not seen in vehicles and the analysis points to network externalities that inhibits in capturing value. The paper exemplifies through the research approach of analytic induction technique that value-creation in itself is not sufficient for the firm to achieve growth and profits, but the capability to appropriate value is as crucial as the value itself. With this, the argument between value-creation versus value-appropriation is explained in the perspective of business strategy with the help of the case on the firm, through the lens of network externality. The network externality is crucial in the movement from value-creation to value-appropriation, as is exemplified by the case of Auto-Dipper.
Keywords
Value Creation, Value Appropriation, Network Externality, Competitive Advantage, Business Strategy.
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