Competitive advantage and performance: the impact of value creation and costliness of imitation

Abstract

We create an industrial organization type model to relate resources to the spread between product market demand and marginal cost. We define competitive advantage as the cross-sectional differential in this spread, and performance as the longitudinal differential between what a firm appropriates in the product market and what it paid in the factor market. With factor markets imposing different costs on the innovator and potential imitator(s), competitive advantage, performance, and high resource value do not necessarily coincide. Also, the interaction between resource value and the cost of imitation is complex and affected by the number of firms in the industry. Copyright © 2009 John Wiley & Sons, Ltd.