Professional Documents
Culture Documents
Fifth Edition
Besanko, Dranove, Shanley, and Schaefer
Chapter 14
Sustaining Competitive
Advantage
Slides by: Richard Ponarul, California State University, Chico
Copyright
easy.
Rivals can imitate the formula for success.
Rivals can use new technologies, products and
business practices to erode the competitive
advantage of industry leaders.
Yet Some firms have been successful in sustaining
their competitive advantage (Coca-Cola, Dell
Computers) for long periods of time.
deterred
Threats to Sustainability
Even when incumbents can deter entry economic
to luck.
Over time profits regress to the mean.
Threats to Sustainability
Good performance is not always attributable to
luck.
A firm might develop advantages that are hard to
imitate.
Yet if the suppliers/buyers are powerful they can
capabilities have to be
scarce
Isolating Mechanisms
Isolating mechanisms limit the rivals from eroding
Impediments to imitation
Early mover advantage
Impediments to Imitation
These mechanisms impede the potential entrants
legal restrictions
Superior access to inputs/customers
Market size and scale economies
Intangible barriers
Casual ambiguity
Historical circumstances
Social complexity
Casual Ambiguity
A firms superior ability to create value may be
Historical Circumstances
Distinctive capabilities may be bound up with the
Social Complexity
Competitive advantage may be hard to replicate if
Early-Mover Advantage
Four different isolating mechanisms fall
under the category of early mover advantage
Learning
curve
Reputation and buyer uncertainty
Switching costs
Network Effects
railroads)
goods market.
structure.
Ex-post if an entrant turns out to be a high cost
producer it quits.
Observed average profits for the industry will be