THE CORNERSTONES OF COMPETITIVE ADVANTAGE: A

RESOURCE-BASED VIEW

Margaret A. Peteraf

Presenter: Wen ZHENG

Research Question• Develop a general model of resources and firm performance,

which at once integrates the various strands of research and provides a common ground from which further work can proceed.

• Four cornerstones of competitive advantage

• Applications of the resource-based model

Cornerstones• Heterogeneity

• Ex Post Limits to Competition

• Imperfect Mobility

• Ex Ante Limits to Competition

Cornerstones• Heterogeneity

• Ex Post Limits to Competition

• Imperfect Mobility

• Ex Ante Limits to Competition

Heterogeneity• Resource and capabilities are heterogeneous across

firms. (Barney, 1991) • Superior Resources (Limited supply)

• Ricardian rents Scarcity of resource supply• Monopoly rents Restriction of output

Cornerstones• Heterogeneity

• Ex Post Limits to Competition

• Imperfect Mobility

• Ex Ante Limits to Competition

Ex post limits to competition• Condition of heterogeneity can be preserved

• Competition• Ricardian Rents: supply of scarce resource (supply curve elasticity)• Monopoly Rents: output (individual demand curve elasticity)

Ex post limits to competition• Imperfect substitutability:

• Demand elasticity (Porter, 1980)

• Imperfect imitability• Entry barrier (Bain, 1956)

• Isolate industry participants from potential entrants

• Mobility barrier (Caves and Porter, 1977)

• Isolate groups of similar firms in a heterogeneous industry

• Isolating mechanisms (Rumelt, 1984, 1987)

• Property rights, information asymmetries, frictions, causal ambiguity, producer learning, buyer

switching cost, reputation, buyer search costs, channel crowding, economies of scale

• Failure of competitive market (Yao, 1988)

• Production economies; sunk cost; transaction cost; imperfect information

• Firm orientation (Ghemawat, 1986)

• Size advantage, preferred access to either resources or customers, restrictions on competitors’

options

• Valuable but non-tradeable assets (Dierickx and Cool, 1989)

• Time compression diseconomies, asset mass efficiencies, interconnectedness of asset stocks,

asset erosion, and causal ambiguity

Cornerstones• Heterogeneity

• Ex Post Limits to Competition

• Imperfect Mobility

• Ex Ante Limits to Competition

Imperfect Mobility• Perfectly immobile

• Property rights are not well defined (Dierickx and Cool, 1989; Meade, 1952; Bator, 1958)

• Idiosyncratic and no other use out side the firm (Williamson, 1979)

• Imperfectly mobile• Resources are specialized to firm-specific needs (Montgomery and

Wernerfelt, 1988)• Co-specialized assets (Teece, 1986)• Transaction cost is high (Williamson, 1975; Rumelt, 1987)

• Necessary conditions for Sustainable competitive advantage • Resource will remain available to the firm• Rents will be shared by the firm• The opportunity cost does not offset the rent (next best potential users)

Cornerstones• Heterogeneity

• Ex Post Limits to Competition

• Imperfect Mobility

• Ex Ante Limits to Competition

Ex ante limits to competition• Prior to any firm’s establishing a superior resource

position, there must be limited competition for that position.

• Economic performance depends on both the returns of the strategies and cost of implementing the strategy (Barney, 1986)

Cornerstones

Applications

• Why do some firms outperform others?

• Help managers understand, preserve, or extend their competitive advantage– Single Business Strategy– Corporate Strategy

Single Business Strategy• Help managers have a clear understanding of whether

their situation meets necessary conditions for a sustainable advantage

• Differentiate valuable from less valuable resource• Mobility• Imitable

• License vs. Internally develop• Imperfect mobile internally develop• Co-specialized assets internally develop

Corporate Strategy• Scope of the firm

• Barney (1988): strategically related acquisition• How rare and inimitable is the resulting combination of resources

• Montgomery and Hariharan (1991): diversification• Broad resource bases

• Theory of diversification• Quasi-fixed fungible• Excess capacity in resources+ high transaction cost• Paradox “excess capacity” “scarcity rents”

• Montgomery and Wernerfelt (1989): extent of diversification• Specificity + market opportunities extent of diversification

• Dosi, Teece and Winter (1990): “coherence” of business activity• Core competence degree of “coherence” • Speed of learning, breadth of the path dependencies, degree of asset

specialization and nature of selection environment scope of firm