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Theories of Strategy - Study Questions & Answers
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Theories of StrategyUniversity of Amsterdam
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All study questions
Extensive answers
Essay-style formatted
Ready for the exam.
, 1. What is competitive advantage?
a. There are different views on competitive advantage, making it an ambiguous concept
(Rumelt, 2003).
b. To understand what competitive advantage is, it is important to consider where it
originates from. The model of perfect competition makes several assumptions about
large numbers, homogeneity, mobility, rationality and transaction costs. When these
assumptions are met, there are no sources of competitive advantage, all firms are
identical and earn zero economic profit (Besanko et al., 2000). Any deviation from the
assumptions of the model of perfect competition is a possible source of competitive
advantage that can lead to performance differences.
c. There are different theories highlighting different deviations (sources of competitive
advantage), explaining what competitive advantage is.
i. Positional views of competitive strategy explain differences in performance in
terms of the characteristics of the competitive situation that prevails at a
particular point in time.
1. Early Porter (1979) defines competitive advantage in terms of the
market power firms have due to favorable market positions within an
industry (industry effect), allowing them to pursue generic strategies -
differentiation and cost leadership (firm effect).
2. Conner (1991) considers competitive advantage as the ability of a firm to
deliver value and/or to do so at lower cost.
3. Barney (1991) and Peteraf (1993) consider competitive advantage as a
firm being able to provide superior economic value. In RBV, the source
of this ability to create superior economic value are costly-to-copy
resources.
Generally, positional views of competitive strategy define
competitive advantage (similarly) as an advantage over
competitors in terms of a higher willingness-to-pay for products
and/or lower economic costs when producing them.
ii. Dynamic views of competitive strategy explain competitive advantage in terms
of operational efficiency over time.
1. Schumpeter: new combinations.
2. Low Church RBV explains performance differences in terms of dynamics
at the collective level: (investment in building) collective knowledge
(Grant, 1996) and (process of) organizational learning (Dierickx & Cool,
1989).
3. Unclear: Teece et al, 1997.
4. Positional and temporal competitive advantage: Stoelhorst (2015).
5. Scale advantages: Stoelhorst, 2005.
d. Hence, competitive advantage is an ambiguous concept defined differently by different
economic views.
2. What is the role of the concept of ‘strategic groups’ in the explanation of performance
differences among firms in Porter’s early work (Porter, 1979 - see also, Ghemawat, 1999)?
a. Porter’s early work (1979) focuses on the structure of an industry and the positioning of
firms within this industry. Strategic groups are a sub element of the structure of an
industry and focus on intra-industry structure. They are defined as groups of firms
following similar strategies in terms of key decision variables (Porter, 1979).
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