The Role of Third Parties in Value Creation and Capture: Why Michelin Stars May Not Be a Good Thing

Abstract

This paper develops an extension of the value-based view of strategic management by incorporating third parties into value networks. The theoretical framework proposes ways in which third parties affect attention and bargaining in markets, and it highlights how third parties can promote and/or impede the creation and capture of value. Consequently, even favorable third party evaluations of a focal firm may hinder their ability to capture value. Michelin Guide’s 2005 entry into the New York City restaurant market serves as the setting for examining these issues empirically. Statistical analyses indicate that restaurants receiving Michelin stars have increased likelihood of failure. A mixed-method approach, including interviews with Michelin started restaurateurs, is used to investigate mechanisms at the upstream, downstream, and organizational levels. The evidence suggests that changes in attention and bargaining at each of these levels makes it more difficult for the restaurant to capture value after receiving a Michelin star. However, the results also indicate that managerial experience may mitigate these negative effects. These counterintuitive findings help emphasize that third parties play complex roles in markets and may produce notable unintended consequences.