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The dynamics of wealth, profit and sustainable advantage

Journal

Strategic Management Journal

Subject

Strategy and Entrepreneurship

Publishing details

Strategic Management Journal 2012 Vol 33:12 p 1384-1410

Authors / Editors

Jacobides M G;Winter S G;Kassberger S M

Biographies

Michael G Jacobides

Publication Year

2012

Abstract

This paper shows how idiosyncratic resources can drive sustained profitability and persistent heterogeneity under competitive conditions. Generic inputs purchased in the market become idiosyncratic resources as the result of firms' investments in customization. Analytically, we show how heterogeneous firms coexist in equilibrium as a function of customization costs. 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. Our results illustrate that sustainable profits may represent a small part of the total wealth created over time by a firm or industry, and that changes in factors shaping a sector's evolutionary trajectory may be more important than changes in factors that determine profits' ultimate sustainability

Available on ECCH

No


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