Chapter 11 - Sustaining competitive advantage Flashcards
the theory of perfect competition implies that opportunities for earning profit based on favorable market conditions will …
quickly evaporate as new entrants flow into the market, increase supply of output, drive price down to the point where economic profits are zero
regression to the mean
when performance goes to extremes due to luck, and then returns to form
resource-based theory of the firm
for a sustainable competitive advantage it must be underpinned by resources and capabilities that are scarce and imperfectly mobile
imperfectly mobile
the resource cannot “sell itself” to the highes bidder (non-tradable, e.g., know-how)
cospecialized
resources that are more valuable when used together than when separated
isolating mechanisms
economic forces that limit the extent to which a competitive advantage can be duplicated/neutralized through the resource-creation activities of other firms
- isolating mechanisms are to a firm what entry barriers are to an industry
different groups of isolating mechanisms
- impediments to imitation
- early-mover advantages
- shock
impediments to imitation
impede existing firms and potential entrants from duplicating the resources and capabilities that form the basis of the firm’s competitive advantage
early-mover advantages
increase the economic power of an advantage over time
shock
fundamental changes that lead to major shifts of competitive positions in a market
4 impediments to imitation
- legal restrictions
- superior access to inputs or customers
- the winner’s curse
- market size and scale economies
winner’s curse
the winning bidder ends up worse than the losers
intangible barriers to imitation
- causal ambiguity
- dependence on historical circumstances
- social complexity
causal ambiguity
situations in which the causes of a firm’s ability to create more value than its competitors are obscure and only imperfectly understood
social complex phenomena
include the interpersonal relations of managers in a firm and the relationship between the firm’s managers and those of its suppliers and customers
network effects/network externalities
consumers often place higher value on a product if other consumers also use it
actual networks
network effect arises because consumers can communicate with other users in the network
virtual networks
consumers are not physically linked. network effect arises from the use of complementary goods
when two or more firms compete for the market, the winner is often the firm that …
establishes the largest installed base
ex ante
before entering
ex post
after entering
creative destruction
innovation causes most markets to evolve in a characteristic pattern
- periods of comparative quiet
- these are punctuated by fundamental shocks or discontinuities that destroy old sources of advantage and replace them with new ones
- the entrepreneurs who exploit these shocks achieve positive profits during the next period of comparative quiet
disruptive technologies
products that offer much higher B - C than their predecessor, but do so not through incremental improvements but with entirely new technologies that drastically lower C
patent racing
innovation is a winner-take.all activity rewarded by a patent
sunk cost effect
concerns the asymmetry between a firm that has already made a commitment to a particular technology or product concept and one that is planning such a commitment
efficiency effect
makes an incumbent monopolist’s incentive to innovate stronger than that of a potential entrant
market for ideas
a place in which the firm can sell its ideas for full value
two elements of the commercialization environment that affect it:
- technology is not easily expropriated by others
- specialized assets must be used in conjunction with the innovative product
dynamic capabilities
a firm needs to search continuously to improve its routines –> the ability to maintain and adapt capabilities that are the basis of a competitive advantage
path dependence
it depends on the path the firm has taken in the past to get where it is now
factors conditions
describe a nation’s position with regard to factors of production that are necessary to compete in a particular industry
demand conditions
include the size, growth and character of home demand for the firm’s product. Sophisticated home customers or unique local conditions stimulate firms to enhance the quality of their product to innovate
VRIO
- valuable
- rare
- inimitable
- organized
