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