The Co-Evolution of Rent Appropriation and Capability Development

Abstract

Extant approaches to rent appropriation are static in that they explore bargaining power at a fixed point in time. This article contributes by examining how capabilities and bargaining power coevolve. As capabilities are developed, those who are favored by knowledge asymmetries make decisions that balance value creation potential against the rent appropriation regime, such as the organizational form in which the capability will be embedded. Using the example of Apple’s development of the iPod, this article illustrates how stakeholders plan for rent appropriation as they assemble new capabilities — well before any value is actually created. Given that firm performance is an outcome of both capability development and rent appropriation, a robust theory must incorporate an understanding of how they coevolve. As such, the article highlights the need to integrate property rights theory with theories of value creation and governance costs as actors constantly make trade-offs along these dimensions.