Economizing and Strategizing: How Coalitions and Transaction Costs Shape Value Creation and Appropriation

Abstract

Research has examined how “economizing” and “strategizing” mechanisms interact in driving competitive outcomes, but the role of coalitions in this process has received little attention. Coalitions between players are established to increase value creation (i.e., economizing), as well as to facilitate positioning (i.e., strategizing). Based on a coalitional model we derive several non-intuitive results. Contrary to Williamson (1991), economizing is not always the best strategy as creating more value may lead other players to strategize more aggressively, offset-ting the additional value creation. Furthermore, creating countervailing power — that is, building a coalition against players with significant power such as monopolists or monopsonists — not only allows the coalition to appropriate more value, but also increases overall benefits by reducing value-destroying competition among the coalition members.

Keywords: economizing, strategizing, transaction costs, cooperative games, bargaining

JEL Classification: M21, L1, C71, D23