The Ecosystem Penalty: Value Creation Technologies and Incentive Misalignment

When are the incentives of a business ecosystem’s participants aligned with its growth? How is the type of complementarities between ecosystem components affecting this alignment? Developing a formal model of value creation and value capture in an ecosystem, we find that alignment is typically imperfect compared to an integrated benchmark, highlighting an “ecosystem penalty” whereby participants’ returns to value creation are lower than that of the ecosystem. Contrary to conventional wisdom, ecosystems with strong synergies between components can exhibit increasing misalignment when its participants have strong ex ante capabilities, while those with weaker synergies can be well-aligned when the orchestrator is strong and complementors are close substitutes. Ecosystems where value creation is constrained by its weakest component exhibit both the best and the worst alignment.