The uncertain future of antitrust: What is needed

Fortunately, most hypercompetitive firms never run afoul of the antitrust laws. In fact, recent court decisions have increasingly recognized the real­ities of hypercompetition. The courts have eased restrictions on competi­tion on price and quality (arena 1 competition). The decision in favor of American Airlines and a ruling in the cigarette industry have made pred­atory

Some theoretical antecedents of resource-based theory

Resource-based theory, like any theory, draws on prior theoretical work in developing its predictions and prescriptions. In the case of resource- based theory, important prior theoretical work comes from at least four sources: (a) the traditional study of distinctive competencies, (b) Ricardo’s analysis of land rents, (c ) Penrose (1959), and (d) the study

The development of resource-based theory

1. EARLY RESOURCE-BASED CONTRIBUTIONS1 Perhaps the first resource-based theory publication in the field of strate- gic management identified as such was by Wernerfelt (1984). Ironically, Wernerfelt’s resource-based arguments did not grow directly from any of the four theoretical traditions identified above. Rather, Wernerfelt’s argu- ment is an example of dualistic reasoning common in economics.

Parallel streams of ‘resource-based’ work

As this resource-based theory was developing, scholars in other research traditions were developing theories of competitive advantage that had numerous similarities to resource-based logic but were developed largely independent of the work cited earlier. Two of the most important of these parallel streams were the theory of invisible assets (Itami 1987), and work on

Additional comments about resource-based theory

Before continuing this discussion, a few additional comments about resource-based theory are needed. These concern the confusion about terms describing factors of production controlled by a firm and the definition of competitive advantage in resource-based theory. These clari- fications will greatly simplify the discussion in the remainder of this book. 1. TERMS TO DESCRIBE

Perfect strategic factor market competition

When firms seeking to develop resources to implement a strategy (strate- gizers) and those who currently own or control these resources (con- trollers) have exactly the same, and perfectly accurate, expectations about the future value of product market strategies before they are actually imple- mented, then the price of the resources needed to conceive

Heterogeneous expectations in strategic factor markets

These perfect competition dynamics, and the zero economic rents from implementing strategies they imply, depend, of course, on the very strong assumption that all strategizers and controllers have the same, and perfectly accurate, expectations concerning the future value of strategies. This is a condition that is not likely to exist very often in real

Other apparent competitive imperfections: the question of tradability

Firms with consistently more accurate expectations concerning the value- creating potential of strategies they are implementing can expect to enjoy competitive advantages from implementing their strategies over the long run. In this sense, differences in firm expectations constitute a strategic factor market competitive imperfection. Some have suggested that other differences between firms, besides dif-

Developing insights into strategic value

Thus far, it has been argued that, in perfectly competitive strategic factor markets, the cost of the resources necessary to implement a strategy will approximately equal the discounted present value of that strategy once it is implemented. It has also been argued that competitive imperfections in this market can give firms opportunities for obtaining

Firm resource approach in strategic management

Chapter 1 of this book defined and developed the strategic management question—Why do some firms outperform other firms?—and described the evolution of resource-based theory as one approach to answering this question. Chapter 2 introduced the concept of a strategic factor market to demonstrate that whether a firm gains competitive advantages does not depend just

Competitive advantage and sustained competitive advantage

The concept of competitive advantage was defined in Chapter 1. There, it was suggested that a firm has a competitive advantage when it is able to create more economic value than the marginal firm in its industry. How- ever, as important as it is to explain the existence of competitive advantages among firms, the

Competition with homogeneous and perfectly mobile resources

Armed with a definition of sustained competitive advantage, it is now possible to explore the impact of resource heterogeneity and immobility on this concept. This is done by first examining the possibility of sustained competitive advantage when firm resources are perfectly homogeneous and mobile. Then, the possibility of sustained competitive advantage under heterogeneity and

Firm resources and sustained competitive advantage

Thus far, it has been suggested that in order to understand sources of sustained competitive advantage, it is necessary to build a theoretical model that begins with the assumption that firm resources may be heterogeneous and immobile. Of course, not all firm resources hold the potential of sustained competitive advantages. To have this potential,

A framework for resource-based analysis: VRIO

The relationship between resource heterogeneity and immobility; value, rarity, imitability, and organization; and sustained competitive advantage is summarized in Figure 3.2. This has been developed into a frame- work that can be applied in analyzing the potential of a broad range of firm resources to be sources of sustained competitive advantage. These analyses not

VRIO framework Discussion

This VRIO framework suggests the kinds of questions that need to be addressed in order to understand whether a particular firm resource is a source of sustained competitive advantage: Is that resource valuable?, Is it rare?, Is it imperfectly imitable?, and Is the firm organized to exploit this resource? This framework is applied to

Defining culture and competitive advantage

Few concepts in organizational theory have as many different and compet- ing definitions as ‘organizational culture’. Smircich (1983), for example, has cited five classes of such definitions in her literature review. Rather than attempt to resolve these numerous and subtle definitional conflicts, a definition that is consistent with most of the research about organizational

Culture and sustained superior financial performance

In order for a firm’s culture to provide sustained competitive advantages, three conditions must be met (Barney 1991a). First, the culture must be valuable; it must enable a firm to do things and behave in ways that lead to high sales, low costs, high margins, or in other ways create economic value to the

Competitive advantage from organizational culture

If a firm’s culture, in order to be the source of sustained competitive advan- tages, must be valuable, rare, and imperfectly imitable, then the possibility that organizational cultures with these characteristics exist must be eval- uated. Previous research on organizational cultures suggests that at least some cultures of some firms have these characteristics, and

Normative implications of culture research

These arguments have a variety of normative implications, both for man- agers in firms without valuable cultures and for managers in firms with valuable cultures. 1. FIRMS WITHOUT VALUABLE CULTURES For firms without valuable cultures, the normative implications of these analyses are somewhat limiting. Such firms cannot expect to obtain even temporary competitive advantages

Defining trust and trustworthiness

Numerous definitions of trust and trustworthiness have been presented in the literature (Gambetta 1988; Bradach and Eccles 1989; Lewicki and Bunker 1994). For purposes of this chapter, Sabel’s definition of trust (1993: 1133) has been adopted: trust is the mutual confidence that no party to an exchange will exploit another’s vulnerabilities. Parties to an