Revisiting Competitive Advantage in the Age of AI

The theory of competitive advantage constitutes one of the most contested and generative domains in strategic management research. From the industrial organization tradition’s emphasis on structural barriers to entry (Porter, 1980) to the resource-based view’s focus on firm-specific assets (Barney, 1991), from dynamic capabilities theory’s attention to organizational learning and reconfiguration (Teece et al., 1997) to the relational view’s insistence on inter-firm complementarities (Dyer & Singh, 1998), the field has produced successive theoretical frameworks, each capturing important dimensions of competitive dynamics while leaving others inadequately addressed. The widespread adoption of AI introduces a set of competitive mechanisms that challenge the foundational assumptions of each of these traditions in ways that require systematic theoretical attention. This chapter argues that AI does not merely add new sources of competitive advantage to an otherwise stable analytical landscape; it reconfigures the fundamental logic through which advantage is generated, sustained, and eroded. The chapter proceeds through five analytical moves. First, it examines how AI challenges the traditional sources of competitive advantage identified in the existing literature, arguing that scale, efficiency, and reputation, while still relevant, are increasingly mediated by algorithmic capabilities in ways that alter their strategic significance. Second, it develops the concept of algorithmic advantage as a theoretically distinct form of competitive advantage that is not fully captured by existing frameworks. Third, it examines the conditions under which algorithmic advantage is sustainable, distinguishing between applications that are easily replicable and those that generate durable differentiation. Fourth, it situates algorithmic advantage within the dynamic capabilities framework, arguing that the integration of AI with firm-specific routines, culture, and governance is the primary mechanism through which algorithmic advantage becomes strategic. Fifth, it addresses the implications of AI for competitive convergence and divergence, examining whether widespread AI adoption tends to homogenize competitive positions or to amplify existing differences.