1. Margaret Peteraf THE CORNERSTONES OF COMPETITIVE ADVANTAGE: A RESOURCE-BASED VIEW

2.  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. RESEARCH OBJECTIVE

3.  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. INTRODUCTION AND FRAMEWORK

4. Heterogeneity o Ricardian Rent & Monopoly Rent o Heterogeneity implies firms of varying capabilities are able to operate in market. o Resource might be fixed,quasi fixed,scare,infrerior – similar to Ricardian rent argument. o Productive factors often quasi-fixed - cannot be expanded rapidly. o Ricardian rent is result from a inherent scarcity of resources supply. A MODEL OF COMPETITIVE ADVANTAGE

5. 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.) RICARDIAN RENT

6.  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. MONOPOLY RENT

7.  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. EX POST LIMITS TO COMPETITION

8.  “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 IMITABILITY

9.  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 IMPERFECT MOBILITY

10.  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 CONTINUE

11.  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 EX ANTE LIMITS TO COMPETITION

12. THE CORNERSTONE OF COMPETITIVE ADVANTAGE

13. 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.

14. 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

15. 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