Kingpins, Bottlenecks, and Value Dynamics Along a Sector

This paper explores the dynamics of value distribution within a sector, using data on the U.S. computer industry as an illustration. It provides exploratory quantitative evidence for the way in which conditions within the segments of a sector’s value chain affect the profitability of those segments compared with the sector as a whole. To consider how value shifts from one part of the sector (such as computer assemblers) to another (such as software and microprocessor makers), we look at how conditions within a segment (such as software developers) affect changes in the value share of that segment compared with the entire sector in terms of market capitalization. We find that the presence of what we call “kingpins”—firms with superior capabilities, modeled in our study as having superior market capitalization and as being disproportionately important in terms of research and development (R&D)—is correlated with a higher share of total sector value, suggesting that kingpins can help a segment to become a “bottleneck.” Sales concentration and the level of R&D expenditure are not always reliable predictors. Kingpins exert a positive externality on their direct competitors, yet their segments display increasing internal inequality over time, making the presence of kingpins a double-edged sword for their peers. Our findings extend recent work on industry architectures, highlighting the interconnectedness of different segments within a sector. They also provide a structure to help study the dynamics of “value migration,” which has not yet attracted much academic scrutiny.