WHAT IS COMPETITIVE ADVANTAGE?
I. Intro
A. Rumelt (2003): Ambiguous concept
B. 4 areas of disagreement:
1. How to conceptualize and measure the value
2. Specific meaning of rents
3. Appropriate use of the opportunity costs concept
4. Whether CA means winning the game or maintaining a position
C. CA has something to do with:
1. Value creation (not specified when it is created and for whom)
2. Having an advantage over competitors
3. Differences in performance
D. Competitive advantage ≠ performance
1. Rather, high levels of performance are a result of having a CA
II. Neoclassical view of perfect competition: The goal is to maximize social welfare and
firms, seen as black boxes and unitary agents, obtain zero economic profit (not the
same as accounting profit).
A. Any deviation from the following assumptions could result in a source of CA:
1. Large numbers: Many buyers and sellers, no one has the power to affect
price
2. Mobility: Wide availability of resources → simple entry and exit simple entry and exit
3. Homogeneity: Competition is based only in price
4. Rationality: Everyone has complete info
B. No explicit definition for CA as all firms are undifferentiated
III. Different views and schools of thought have contrasting definitions for CA:
A. Porter: Generic strategies (Stoelhorst, 2018) are sources of CA, which is seen in
terms of (economic) performance
B. High Church of RBV: Market imperfections as seen in imperfect strategic factor
markets (Barney, 1986) lead to positional asymmetries. CA is seen in terms of
value appropriation
C. Evolutionary logic: Learning asymmetries that arise from incomplete factor
markets (Dierickx et al., 1989) are a source of CA which lead to differences in
value created
IV. Conclusion
A. Neoclassical theory as a benchmark
B. CA still as an ambiguous concept
, WHAT IS THE ROLE OF 'STRATEGIC GROUPS' IN THE EXPLANATION OF PERFORMANCE
DIFFERENCES AMONG FIRMS IN PORTER'S EARLY WORK?
I. Intro
A. Porter's early work uses Bain-type industrial organization (IO) as a starting point
B. Importance of industry structure/environment on a firm's performance (Porter,
1981)
C. Firm success /performance depends on:
1. Attractiveness of the industry
2. Firm's relative position w/n that industry
D. 3 effects that explain differences in performance:
1. Industry effect: Five forces model (Ghemawat, 1999)
2. Strategic group effect (Porter, 1979)***
3. Firm effect: Generic strategies (Stoelhorst, 2018)
E. Profitability and performance are dependent on various factors, of which
barriers to competition is one
II. Strategic groups: Cluster of firms with similar strategies and key decision variables
within an industry (Porter, 1979)
A. Their presence implies that there's an allocation of firm's profits within an
industry, and even within the strategic group themselves
B. Mobility barriers: Barriers of entry among strategic groups that provide some
firms in the industry with persistent advantages over others and protect them
from (quick) imitation and losing their CA (Porter, 1979)
1. Strategic group effect: Mobility barriers positively affect the avg
profitability (performance) of the firms
2. This means that firms within a strategic group with persistent
advantages will see higher levels of performance when compared to
firms in other strategic groups within the same industry
III. Strategic groups may also be influenced (and their performance) by the industry and the
firm effect
A. Industry effect: Barriers to competition in the industry level positively affect the
average profitability of the firms (Ghemawat, 1999)
1. Strategic groups w/n an industry will remain protected by the barriers of
entry from possible competitors
B. Firm effect: Positions of differentiation or low cost positively affect the relative
profitability of firms (Stoelhorst, 2018)
1. Differences between firms within a strategic group will position some
firms ahead than others, leading to differences in performance within
the same strategic group
IV. Conclusion
A. Porter's early work would equate performance to economic profitability
B. Strategic groups on performance
1. Help explain the distribution of profits
2. Isolate firms from imitation and rivalry through mobility barriers
3. Interrelation between all three effects as mentioned by Porter
I. Intro
A. Rumelt (2003): Ambiguous concept
B. 4 areas of disagreement:
1. How to conceptualize and measure the value
2. Specific meaning of rents
3. Appropriate use of the opportunity costs concept
4. Whether CA means winning the game or maintaining a position
C. CA has something to do with:
1. Value creation (not specified when it is created and for whom)
2. Having an advantage over competitors
3. Differences in performance
D. Competitive advantage ≠ performance
1. Rather, high levels of performance are a result of having a CA
II. Neoclassical view of perfect competition: The goal is to maximize social welfare and
firms, seen as black boxes and unitary agents, obtain zero economic profit (not the
same as accounting profit).
A. Any deviation from the following assumptions could result in a source of CA:
1. Large numbers: Many buyers and sellers, no one has the power to affect
price
2. Mobility: Wide availability of resources → simple entry and exit simple entry and exit
3. Homogeneity: Competition is based only in price
4. Rationality: Everyone has complete info
B. No explicit definition for CA as all firms are undifferentiated
III. Different views and schools of thought have contrasting definitions for CA:
A. Porter: Generic strategies (Stoelhorst, 2018) are sources of CA, which is seen in
terms of (economic) performance
B. High Church of RBV: Market imperfections as seen in imperfect strategic factor
markets (Barney, 1986) lead to positional asymmetries. CA is seen in terms of
value appropriation
C. Evolutionary logic: Learning asymmetries that arise from incomplete factor
markets (Dierickx et al., 1989) are a source of CA which lead to differences in
value created
IV. Conclusion
A. Neoclassical theory as a benchmark
B. CA still as an ambiguous concept
, WHAT IS THE ROLE OF 'STRATEGIC GROUPS' IN THE EXPLANATION OF PERFORMANCE
DIFFERENCES AMONG FIRMS IN PORTER'S EARLY WORK?
I. Intro
A. Porter's early work uses Bain-type industrial organization (IO) as a starting point
B. Importance of industry structure/environment on a firm's performance (Porter,
1981)
C. Firm success /performance depends on:
1. Attractiveness of the industry
2. Firm's relative position w/n that industry
D. 3 effects that explain differences in performance:
1. Industry effect: Five forces model (Ghemawat, 1999)
2. Strategic group effect (Porter, 1979)***
3. Firm effect: Generic strategies (Stoelhorst, 2018)
E. Profitability and performance are dependent on various factors, of which
barriers to competition is one
II. Strategic groups: Cluster of firms with similar strategies and key decision variables
within an industry (Porter, 1979)
A. Their presence implies that there's an allocation of firm's profits within an
industry, and even within the strategic group themselves
B. Mobility barriers: Barriers of entry among strategic groups that provide some
firms in the industry with persistent advantages over others and protect them
from (quick) imitation and losing their CA (Porter, 1979)
1. Strategic group effect: Mobility barriers positively affect the avg
profitability (performance) of the firms
2. This means that firms within a strategic group with persistent
advantages will see higher levels of performance when compared to
firms in other strategic groups within the same industry
III. Strategic groups may also be influenced (and their performance) by the industry and the
firm effect
A. Industry effect: Barriers to competition in the industry level positively affect the
average profitability of the firms (Ghemawat, 1999)
1. Strategic groups w/n an industry will remain protected by the barriers of
entry from possible competitors
B. Firm effect: Positions of differentiation or low cost positively affect the relative
profitability of firms (Stoelhorst, 2018)
1. Differences between firms within a strategic group will position some
firms ahead than others, leading to differences in performance within
the same strategic group
IV. Conclusion
A. Porter's early work would equate performance to economic profitability
B. Strategic groups on performance
1. Help explain the distribution of profits
2. Isolate firms from imitation and rivalry through mobility barriers
3. Interrelation between all three effects as mentioned by Porter
