THE CORNERSTONES OF
COMPETITIVE ADVANTAGE:
A RESOURCE-BASED VIEW
Margaret
Peteraf
RESEARCH OBJECTIVE
 The purpose of this article is to develop a general model
of resources and firm performance which at once
integrates the various strands of research and provides a
common ground for future research.
 Integrates existing perspectives model of resources and
firm performance .
 Relies on economics of the resource-based view of
competitive advantage.
INTRODUCTION AND FRAMEWORK
 Resource based model of the theoretical conditions
which underlie competitive advantages is underscored.
Four cornerstone conditions that each must be met for
sustainable competitive advantage.
a) Resources heterogeneity b) Ex post limit….
c) Imperfect mobility
d) Ex anti limit….
Applications to business and corporate strategy.
A MODEL OF COMPETITIVE ADVANTAGE
Heterogeneity
oRicardian Rent & Monopoly Rent
oHeterogeneity implies firms of varying capabilities are
able to operate in market.
oResource might be fixed,quasi fixed,scare,infrerior –
similar to Ricardian rent argument.
oProductive factors often quasi-fixed - cannot be
expanded rapidly.
oRicardian rent is result from a inherent scarcity of
resources supply.
RICARDIAN RENT
Scarcity rents heterogeneous
factors
 This model consistent with
competitive behavior in
product market - Firms are
price takers and produce
where price equals MC.
 High returns to low cost
firms cannot be attributed to
artificial restriction of output
or to market power.
 Key point: superior resources
remain in limited supply cannot be expanded freely or
imitated by other firms. (See
figure 2 to see what happens
this is not case.)
MONOPOLY RENT
 Monopoly profits from a deliberate restriction of output
rather then the an scarcity of resources of supply.
 In context of monopoly, heterogeneity may result from
spatial competition or product differentiation.
 Also homogeneous firms may earn monopoly rents:
Cournot Behavior
Collusive Behavior
 In this argument or case, heterogeneity occurs across two
groups of firms besides depends on barriers to entry.
EX POST LIMITS TO COMPETITION
 To maintain the sustained competitive advantage the
condition of heterogeneity be persevered.
 LR phnonomena is preferred over SR to have rent.
 Must be forces that limit competition for rents (Figure
2 shows how ex-post competition erodes Ricardian
rents).
 Resource-based work has focused on 2 critical factors
that limit ex post competition:
 Imperfect imitability: Best key for competive
advantages.
 Imperfect substitutability - substitutes reduce rents by
making the demand curves of monopolists more elastic.
IMPERFECT IMITABILITY
 “Isolating mechanisms” – phenomena coined by Rumelt
(1984) - that protects firm from imitation and preserve
their rents streams.
 These include,
 Property rights to scarce resources
 Quasi-rents (lags, information asymmetries, and frictions)
(Rumelt, 1987)
 Producer learning, buyer switching costs, reputation, buyer
search costs, economies of scale (Rumelt, 1987)
 Ghemawat (1986) - inimitable positions derive from size
advantages, preferred access to resources or customers,
restrictions on competitors’ options
IMPERFECT MOBILITY
 Resources are perfectly immobile if they cannot be
traded:
 Dierickx & Cool (1989) - one of their examples are
resources for which property rights are not well defined
 Teece (1986) – co-specialized assets, which have higher
economic value when employed together
 Williamson (1975), Rumelt (1987) - resources may be
imperfectly mobile because of very high transactions
costs
CONTINUE
 Opportunity cost of imperfectly mobile resource is significantly
less than the value to the present employer (firm). Here, Peteraf
defines opportunity cost in terms of next best potential user (e.g.,
firm), rather than next best use.
 Rents will be shared between factor (input) owners and the firm
employing them, thus - bilateral monopoly where rent distribution
is indeterminate: Imperfect factor mobility necessary for SCA
EX ANTE LIMITS TO COMPETITION
 There must be 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 of firms depends not only on
returns from their strategies, but also on cost of
implementing those strategies (Barney, 1986).
 Key is the - Cost
THE CORNERSTONE OF COMPETITIVE
ADVANTAGE
APPLICATION
 Single Business Strategy
 At the single business level, the model may help
managers differentiate between resources which might
support a competitive advantage from other less
valuable resources (Barney, 1991).
 If innovation is no more than a complex assembly of
relatively available technologies, a firm could consider
building other co-specialized resources that are less
available.
APPLICATION
 Corporate strategy
 Core concern of RBM with the internal accumulation of
assets and or analyze issues regarding the scope of the
firm.
 Diversification matter in the context to license new
tech’ or develop internally.
 Firms with more specialized resources are more
constrained to enter into widely different product markets
- and specialized resources relatively scarce, thus higher
rents
CONTRIBUTION AND DISCUSSION
 Peteraf (193) provides a synthesis of previous work in
RBT
 Shows how concepts and ideas in RBT are consistent
with a Ricardian view of economic rent and competitive
advantage
 Resource-based Theory - only theory of corporate scope
capable of explaining the range of diversification.
 Future issues
 Problem of comparative survival
 It’s blindingly obvious “Water is the most essential
item in the world”.
 Resources external to firm