Opening the Black Box of Value Appropriation: The Appropriation Ability in Constrained Markets

Abstract

There has been growing interest in how companies appropriate value when interacting with their exchange parties. We contribute to this debate by hypothesizing and testing the role of heterogeneous appropriation abilities of transacting agents (buyers and sellers) on bargaining outcomes in constrained settings. To test our hypotheses, we employ proprietary data from a franchisor of dental clinics focused on the Bottom of the Pyramid (BoP), a market in which value appropriation is particularly relevant because buyers are highly constrained in their ability to pay for high-quality services. Our quasi-experimental design allowed us to identify that the existing constraints of transacting agents are likely to limit the extent of the appropriation abilities of both actors in the negotiating dyad. We show that even sellers with superior appropriation abilities (proxied by previous experience in negotiations) appropriate less value by providing extra discounts when negotiating with buyers with severe financial constraints. Nevertheless, we observe that sellers with enhanced appropriation abilities reduce their appropriation in the short-term to secure long-term appropriation through recurring purchases from financially constrained buyers.