11- Sustaining A Competitive Advantage

Question 1

Sustaining a competitive advantage

Answer 1

If genuine and unique to preserve if from being imitated and fully compréhensible for competitors.

Question 2

SCA - perfect competition

Answer 2

No competitive advantage will be sustainable and the persistance of profitability over time should be weak because most firms will converge to the competitive level.

Question 3

SCA - monopolistically market

Answer 3

Sellers can raise their price above MC because they are differentiated in certain niches. Incumbents can mostly only preserve profits by deterring entry (creating endogenous ink costs through branding)

Question 4

SCA - all market structure

Answer 4

• volatile conditions or natural disaster => effect of regression to the mean.
• powerful buyer and suppliers.

Question 5

Profit persistence study

Answer 5

Müller - firms with abnormally high levels tend on average to decrease in profitability over time while firms with abnormally low levels of profitability tend to increase over time. However profit rates of these two groups do not converge to a common mean.

=> market forces are a threat to profits but only up to a point

Question 6

Resource based theory (RBT)

Answer 6

A competitive advantage is sustainable when it persists despite efforts by competitors or potential entrants to duplicate or neutralise it and the main influence factors are recourses and capabilities.
Successful persistence assumes:
- resource heterogeneity: persistent asymetries in resources and capabilities
- scarce and imperfectly mobile

Imperfectly mobile= cannot sell itself to the highest bidder (cospecialized products)

Question 7

RBT prevent duplication or neutralisation of SCA

Answer 7

Threat: better business model
1- impediments to imitation
2- early-mover advantage

Question 8

1- Impediments to imitation

Answer 8

= isolating mechanisms

1) Legal restriction: patents, gov license => pay, M&A (mobile + scarce)
2) Superior access to inputs or customers: ownership, exclusifs LT contracts => work if lower price or increased value
3) Winners curse
4) Market size and scale economies => if demand does not grow too large
5) Casual ambiguity: causes of CA are obscure => cannot be replicated
6) Historical circumstances
7) Social complexity : interpersonal relations => trust, honesty

Question 9

2- early mover advantage

Answer 9

1) Learning curve
2) Reputation and buyer uncertainty about the product quality
3) Buyer switching costs: tangible or intangible
4) Network effect: place higher value in a good if other consumers also use it and is related to standards like hardware

Question 10

For/In the market competition

Answer 10

When a firm attempts to introduce a new standard it competes for the market.
When a firm just does along with existing standards it competes in the market.

For the market if:

• few competitors
• winning overweight costs and provide large customer base
• early adopters are accessible and can influence mainstream customers
• complementary goods
• all firms in the value net can be taken into account

Question 11

Causes of early mover disadvantage

Answer 11

• lack of complementary assets needed to commercialise the product
• bet on the wrong technology/ product

Question 12

Schumpeter

Answer 12

Entrepreneurship is the ability to act in opportunities that innovation and discoveries create.

Creative destruction: process whereby old sources of competitive advantage are destroyed and replaced by new ones.

Question 13

Innovator’s dillema

Answer 13

Whether large firms are doomed to be less innovative than smaller rivals. Outcome is determined by:
1- Productivity effect: motivation vs bureaucracy and impartiality (do not own)
2- Sunk Cost effect: inertia that favours sticking with the current technology
3- Replacement effect: assuming equal innovative capabilities an entrants would be willing to spend more than the monopolist to develop cost-reducing innovation because he won’t replace itself but the monopolist
4- efficiency effect

Question 14

Market for ideas.

Answer 14

A place in which the firm can sell its ides for full value. Depends on:

• if the technology needs to be protected by patents
• if it requires specialised assets (marketing)

Question 15

Evolutionary economics and dynamic capabilities

Answer 15

According to evolutionary economics, firms do not choose innovative activities to maximise profits as microeconomic theory. Instead key decisions concerning innovation result from organisational routines.

Because firms search continuously to improve them, the ability to maintain and adapt capabilities are he basis of its competitive advantage and is determined by dynamic capabilities.

Which are constrained by:

• expérience and Learning (path dependent)
• influence of complementary assets
• windows of opportunity

Question 16

Environmental factors that promote/impede CA (Porter)

Answer 16

1- factor condition: infrastructure
2- demand condition: size, growth and cracher of demand
3- competitive supplier or support industries
4- Strategy structure and local rivalry

Question 17

Strategic CSR

Answer 17

Any responsible activity that allows a form to achieve a sustainable competitive advantage regardless of the motive.

CSR= private provision of public goods

Should invest up to MC =MR

Challenge:

• how to measure the value
• how to capture the value created ? (Reputation)
• enhanced access to capital markets
• preempt government inventory intervention
• improve labor efficiency and productivity (recruitment, retention, productivity)