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The Dynamics of Wealth, Profit and Sustainable Advantage

  • Michael G. Jacobides
  • Sidney G. Winter
  • Stefan M. Kassberger

This 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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Paper 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.

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Date of creation: 09 Dec 2010
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Handle: RePEc:ssa:lemwps:2010/22
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