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The dynamics of wealth, profit, and sustainable advantage
Author(s) -
Jacobides Michael G.,
Winter Sidney G.,
Kassberger Stefan M.
Publication year - 2012
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.1985
Subject(s) - profitability index , industrial organization , monopolistic competition , profit (economics) , sustainability , microeconomics , economics , personalization , function (biology) , business , marketing , finance , evolutionary biology , biology , monopoly , ecology
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. Copyright © 2012 John Wiley & Sons, Ltd.