The Dynamics of Wealth, Profit and Sustainable Advantage
AbstractThis paper shows how idiosyncratic resources can be the basis of sustained profitability and persistent heterogeneity under competitive conditions: Generic inputs purchased in the market become idiosyncratic resources by investments in customization. Analytically, we show how heterogeneous firms co-exist in equilibrium. Computationally, we show that sustainable profits can emerge without "monopolistic" imperfections. We consider how capability heterogeneity, resource customization cost and ease of expansion interact to drive short-run and sustainable profits. Results illustrate that, in an industry evolution context, sustainable profits may represent a small part of total wealth creation, and that changes in factors shaping a sectors' evolutionary trajectory may be more important than changes in factors that determine profits? ultimate sustainability, thus calling into question the familiar emphasis on "sustainable advantage".
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Bibliographic InfoPaper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2010/22.
Date of creation: 09 Dec 2010
Date of revision:
Competitive advantage; sustainability; heterogeneity; industry evolution; rent appropriation.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-18 (All new papers)
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