1. The Cornerstones of Competitive Advantage: A Resource-Based View
Margaret A. Peteraf
Strategic Management Journal (1993), 14(3):
Presented by Julie Ao, Fall 2017

2. Summary
Resource-based model is still in the development stage, and there is a need for greater rigor and richness of detail.
Subtle variations in terminology across papers made communication more difficult
The underpinning model seems disjoint
Purpose:
To develop a general model of resources and firm performance, which at once integrates the various strands of research, and provides a common ground from which further work can proceed.
Four conditions that underpin competitive advantage:
Resource heterogeneity
Ex post limits to competition
Imperfect resource mobility
Ex ante limits to competition

3. Resource Heterogeneity---Ricardian Rents
A basic assumption is that the resource bundles and capabilities underlying production are heterogeneous across firms (Barney, 1991).
Firms with superior resources will earn rents
Ricardian rents
Superior productive factors in limited supply → scarce → insufficient to satisfy demand → inferior resources are brought into production
Key point: the superior resources remain limited in supply
If NOT...
Rents will be dissipated

4. Resource Heterogeneity---Monopoly Rents
Monopoly profits result from a deliberate restriction of output rather than an inherent scarcity of resource supply
In monopoly models, heterogeneity may result from spatial competition or product differentiation
Firms in favorable positions face downward sloping demand curves → restrict their outputs → maximize their profits
Homogeneous firms may also earn monopoly rents
Cournot behavior and collusive behavior may yield prices in excess of marginal costs
These behaviors depend on barriers of entry
Heterogeneity occurs across incumbent firms and potential entrants

5. Ex Post Limits to Competition
Durable heterogeneity for rents over a longer term---Ex post limits to competition
There must be forces which limit competition after a firm’s gaining a superior position and earning rents
Competition may dissipate rents by increasing the supply of scarce resources
Ex post competition erodes Ricardian rents
Ex post competition erodes monopoly rents
Two critical factors that limit ex post competition:
Imperfect substitutability (Porter’s (1980) five forces)
Imperfect imitability
Causal ambiguity (Lippman and Rumelt, 1982)
Production economies and sunk costs, transaction costs, and imperfect information (Yao, 1988)
Size advantages, preferred access to either resources or customers, and/or restrictions on competitors’ options (Ghemawat, 1986)
Time compression diseconomies, asset mass efficiencies, interconnectedness of asset stocks, asset erosion (Dierickx and Cool, 1989)

6. Imperfect Mobility
Resources are perfectly immobile if they cannot be traded
Property rights are not well defined (Dierickx and Cool, 1989)
Resources are specialized to firm-specific needs (Williamson, 1985)
Cospecialized assets (Teece, 1986)
High transaction costs associated with the transfer (Rumelt, 1987; Williamson, 1975)
Immobile or imperfectly mobile resources remain bound to the firm---sustained advantage
Opportunity cost of their use is less than their value to the present employer
Peteraf (1993) defines opportunity cost in terms of next best potential user (e.g., firm), rather than next best use.
Rents will be shared between the factor owners and the firm employing them
Bilateral monopoly, in which the distribution of rents is indeterminate
Rents are jointly produced and are as much due to the firm as to the factor

7. Ex Ante Limits to Competition
There must be limited competition for the superior resource position before any firm’s establishing that position.
A superior location could only be a source of above normal returns if some firm had the foresight or good fortune to acquire its in the absence of competition
The economic performance of firms depends not only on the returns from their strategies, but also on the cost of implementing those strategies (Barney, 1986)
Ex ante competition to develop imperfectly mobile resources can also dissipate expected returns
Imperfect resource mobility is a not sufficient condition

8. The Corner Stones of Competitive Advantage
Resource heterogeneity creates Ricardian or monopoly rents
Ex post limits to competition prevent the rents from being competed away
Imperfect factor mobility ensures that valuable factors remain with the firm and that the rents are shared
Ex ante limits to competition keep costs from offsetting the rents
Four conditions are related!

9. Applications of the Resource-Based Model
Single business strategy
The model may help managers differentiate between resources which might support a competitive advantage from other less valuable resources (Barney, 1991)
A resource-based perspective may also help a firm in deciding whether to license a new technology or whether to develop it internally
Corporate strategy
A number of researchers have utilized a resource-based view to analyze issues regarding to the scope of the firm
Variations in the speed of learning
The breadth of the path dependencies
The degree of asset specialization
The nature of the selection environment
The model implies an optimal extent of diversification
Resource efficiency loss → returns diminish

10. Discussion Linking with Penrose (1959)----(Kor and Mahoney, 2004)
Penrose (1959) explains the rate and direction of firm growth
The availability of top managerial and technical talent serves as the bottleneck for a firm’s growth rate in a particular period of time
The current knowledge bases and underutilized resources of the firm determine the direction of firm growth
Key argument is that there is an optimal rate for achieving profitable growth
Isolating mechanisms in Penrose (1959)
Path dependencies in resource development---Dierickx and Cool (1989)
Firm-specific knowledge possessed by managers---Dierickx and Cool (1989)
Shared team-specific experience of managers---Dierickx and Cool (1989)
Entrepreneurial vision of managers---Rumelt (1987)
Firm’s idiosyncratic capacity to learn and diversify---Williamson (1979)
Ex post limits
Imperfect mobility
Ex ante limits