When “vertically integrated markets”
become “augmented markets”
Richard LE GOFF
[email protected]
Jonathan BAINEE
[email protected]
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Layout :
1. Understanding the new deal of « augmented market »
2. Situating the concept of « augmented market »
3. Identifying the reality of « augmented markets »
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1. Understanding the new deal of « augmented market »
-> Stylized facts :
-> Troubling strategies of firms :
2010 – Citroën
Multicity
2010 - Produce &
provide clean energy
2010 - Identify & list
EV charge points
Patents EV charge points
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1. Understanding the new deal of « augmented market »
-> Some definitions & precisions :
An « augmented market » is a new industrial structure, according to the
properties of both its supply and demand sides.
A such structure is characterised by a trans-sectoral integration of
separated industries that occurs at a single or multiple added value
levels.
The strategy to « augment [its] market », mainly trough an « organic
growth », gives an advantage for a firm that become an « augmented
firm » and which seeks a « trans-sectoral rent ».
Downstream
Informational
Servicial
Technological
Upstream
Infrastructural
Organic
Horizontal
Vertical
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1. Understanding the new deal of « augmented market »
-> Some definitions & precisions :
The mastering of a common and shared technological, infrastructural,
servicial or informational added value level :
-
Lower the marginal cost of production (fix costs of investment are
shared by a most important number of consumers);
-
Allows some indirect « cross network effects » so that the value of a
product for a class of agents is positively correlated with the
required amount of an other good available on another market;
-
Allows the subadditivity of costs functions (
drives the trans-sectoral integration;
Building datacenter / create databases
), that
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1. Understanding the new deal of « augmented market »
-> Some definitions & precisions :
The trans-sectoral integration comes from a « meeting » between
separated industries and allows :
-
the creation of an « augmented product » that is still the same
product but gains additionnal fonctionalities;
-
a bilateral market power that drives the principle of sponsorization,
i.e. cross-subsidization between products of the separated sectors;
-
the creation of a « trans-sectoral rent ».
-> Electric mobility operators & charges
agregators managing EVs :
Trading on
energy markets
This is an
electric motor
EV storage function
EV mobility function
Selling smart &
electric mobility
This is
a battery
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2. Situating the concept of « augmented market »
-> In the field of Business Economics :
In terms of Business Economics, an « augmented market » cannot be
seen as :
-> Horizontal integration :
Augmented market
• Acquisition or economic development of activities at the same
level of value chain -> same activity
-> nor Vertical integration :
• Acquisition or extension of the firm along the value chain,
upstream or downstream -> same industry
-> Nor Diagonal integration :
• strategic acquisitions/alliances/information/partnerships between
companies in order to improve access to consumers (market
extension) and to achieve economies of scale and scope (cross
benefits) (Oxford reference) -> same functionality
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2. Situating the concept of « augmented market »
-> In the field of Industrial Economics :
In terms of Industrial Economics, an « augmented market » cannot be
seen as :
-> Bundle / bouquets economics :
• A bundle is a commercial offer which articulates goods &/or
services that have their own markets but contribute to one
homogeneous functionality (Moati & ali., 2006);
-> nor a Multi-sided market :
• The value of a product is positively correlated with the required
amount of an other good from a separate industry, which form the
other side of a same market (Wauthy, 2008);
-> nor an Industrial convergence :
• Industrial convergence is an industrial integration between 2 or
more industries that create a new industry (Zhou, 2003);
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3. Identifying the reality of « augmented markets »
-> Statistical identification :
Identifying dynamics of firms boundaries can be done by understanding
the « corporate coherence », thanks to combinatorial statistics on
activity portfolio of diversified firms (as Teece & alii, 1994);
The aim is to identify inter-industrial relatedness through the analyse of
inter-relations between activities within firms, considering :
- The number of workers (Teece & alii., 1994),
- sales revenue (Bryce & Winter, 2009),
- added value, or other weighting keys ;
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3. Identifying the reality of « augmented markets »
-> Towards a typology :
After obtaining a “coherence degree” and identifying “outliers”, we can
explain & describe the basic logic of the augmentation of the market.
- Existing : resource-based approach (Robins & Wiersema, 1995) ;
- Proposed : functionnal approach (in the field of Gallouj & Weinstein, 1997) ;
To build and obtain a typology, we need a structured, comprehensive
and systematic analysis of “augmented markets”.
Nature of cross
network effects
Sectors/industries
Markets
Price elasticity
Scope
Actors
Inputs/outputs
Principle of
articulation
Integration
degree
Architecture
Functions
Position in the
value chain
Markets structure
Economic engineering
Type of competition
Pricing principle
Nature of
interfaces
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Thank you for your attention…and
your questions !
[email protected]
Bibliography
- Bainée J. & Le Goff R. (2012), « When territory tackles with system good – The case of the emergence of an Electric Vehicle industry in
California », Revue d’Economie Régionale et Urbaine, n°3, pp.303-326°;
- Bryce D. & Winter S. (2009), « A General Interindustry Relatedness Index », Management Science, Vol.55, n°9, pp.1570-1585°;
- Gallouj F. & Weinstein O. (1997), « Innovation in services », Research Policy, n°26, pp.537-556°;
- Moati P., Ranvier M. & Sury R. (2006), Des bouquets pour répondre globalement aux besoins des clients – éléments pour l’analyse économique
d’une nouvelle forme d’organisation des marché dans le régime de croissance post-fordien, Cahier de recherche du CREDOC, n°230, 138 pages°;
- Robins J. & Wiersema M. (1995), « A resource-based approach to the multibusiness firm: Empirical analysis of portfolio interrelationships and
corporate financial performance », Strategic Management Journal, Vol.16, n°4, pp.277-299°;
- Teece D., Rumelt R., Dosi G. & Winter S. (1994), « Understanding corporate coherence – theory and evidence », Journal of Economic Behavior
and Organization, n°23, pp.1-30°;
- Wauthy X-Y. (2008), « Concurrence et régulation sur les marchés de plate-forme : une introduction », Reflets et perspectives de la vie
économique, vol.47, n°1, pp.39–54°;
- Weyl G. (2010), « A Price Theory of Multi-sided Platforms », American Economic Review, vol.100, n°4, pp.1642–1672°;
- Zhou Z-H. (2003), « Industry convergence : historical symbol of industry innovation – analysis on case of convergence of telecom, broadcasting
and publishing », Industry Economy, n°1, pp.27-42°;
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