Two competing American approaches to strategy

There are two competing American approaches to competitive strategy. On the one hand is the collusion-based approach. According to this view, companies sustain advantages by using entry barriers and building explicit or implicit agreements with competitors. On the other hand is all-out war. Under this view, companies sustain their leadership through a dynamic movement

An old tradition returns-with a twist

The current drive to return to cooperation may be the last gasp of diehard adherents of sustainable advantage and traditional collusion-based strat­egy. If they cannot cooperate tacitly, they attempt to cooperate openly. If they cannot sustain their advantages by ordinary means, they try to do so by the extraordinary means of neutralizing the competition

Hypercompetition: A new ideology of competition

Markets were never really static; they just moved to higher levels of com­petition so slowly that they appeared to be static. But today markets are driven by the forces of global information processing and technological competitions that have transformed relatively low-intensity static envi­ronments to high-intensity dynamic hypercompetition overnight. These forces create opportunities to unseat

Hypercompetitive nations

In hypercompetition the advantages of nations are just as unsustainable as the advantages of companies. The past success of U.S. companies in world markets is no guarantee of their future success, as the rise of strong com­petitors from Europe and Asia has demonstrated. Nor is Japan’s success any indication of its future prospects; it

Antitrust policy and the need for a fundamental shift in American ideology

Traditional antitrust laws were created to respond to the needs of the old realities of competition. They are based on the assumption that mar­kets are static and companies can build sustainable advantages that result in monopolies or quasi monopolies. Antitrust laws were also designed to counter the power of large corporations that sought to

The obsolescence of antitrust

Antitrust laws were originally designed as a counterweight to the power of large corporations. These laws leveled the playing field for the “little guy”: customers and small competitors. They were supposed to prevent monop­olies, collusion and price fixing, predation, and exclusionary practices. These laws were created in a time of robber barons. But now,

The dynamic efficiency and fairness of hypercompetition

A group of economists who testified for IBM commented that a key weak­ness of the government’s economic analysis in the case was that it was based on a static view of the world. [One] underlying error that the government’s economic analysis committed was to suppose that a dynamically changing competitive market whose basic feature

Antitrust laws have a negative effect on hypercompetition

Traditional antitrust laws chill and dampen the aggressive competition necessary to achieve the four types of dynamic efficiency in hypercompeti­tion. When firms are very successful at racing up the escalation ladders, they are, ironically, vulnerable to allegations of being anticompetitive. In hypercompetition companies often do things that might be interpre­ted as anticompetitive under antitrust

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