Changing the added values
Excerpt from a reading (The Right Game by Brandenburger):
Adam and 26 of his M.B.A. students are playing a card game. Adam has 26 black cards, and each of the students has one red card. Any red card coupled with a black card gets a $100 prize (paid by the dean). How do we expect the bargaining between Adam and his students to proceed?
First, calculate the added values. Without Adam and his black cards, there is no game. Thus Adam’s added value equals the total value of the game, which is $2,600. Each student has an added value of $100 because without that student’s card, one less match can be made and thus $100 is lost. The sum of the added values is therefore $5,200—made up of $2,600 from Adam and $100 from each of the 26 students. Alas, there is only $2,600 to be divided. Given the symmetry of the game, it’s most likely that everyone will end up with half of his or her added value: Adam will buy the students’ cards for $50 each or sell his for $50 each.
So far, nothing is surprising. Could Adam do any better? Yes, but first he’d have to change the game.
In a public display, Adam burns three of his black cards. True, the pie is now smaller, at $2,300, and so is Adam’s added value. But the point of this strategic move is to destroy the added values of the other players. Now no student has any added value because 3 students are going to end up without a match, and therefore no one student is essential to the game. The total value with 26 students is $2,300, and the total value with 25 students is still $2,300.
At this point, the division will not be equal. Indeed, because no student has any added value, Adam would be quite generous to offer a 90:10 split. Since 3 students will end up with nothing, anyone who ends up with $10 should consider himself or herself lucky. For Adam, 90% of $2,300 is a lot better than half of $2,600. Of course, his getting it depends on the students’ not being able to get together; if they did, that would be changing the game, too. In fact, it would be changing the players, as in the previous section, and it would be an excellent strategy for the students to adopt.
It's interesting to observe the effects of this type of dynamic IRL. The counterintuitive approach: lowering the added value of others to increase your own share of the pie.
Startups tend to create value; big organizations tend to capture value and often times, this involves taking away value from the whole pie. That's why regulation may exist against the monopolizer... but in that time between when you've become so big that you control the price because your supply is the market's only supply: that is the time for some nutty arbitrage opportunities. Nintendo did this in 1998 by supplying only 33 million cartridges in a retailers market that demanded 45 million cartridges,
This is why innovation is a way to burn the gordian knot and do the whole thing over again (but more efficiently, faster, etc). Forget what was and who manufacturers it... create what will become. The cool thing is that if first movers do it right, they monopolize "potential." That's why waitlist campaigns go crazy. The case example would be Superhuman. Create a product that nobody has but everyone wants (aka inbox zero and a sexy interface) and limit who can consume it. Consumers will signup to your waitlist like they lined up at Toys R'Us stores in 1998.