Firm Capabilities and Industry Structure
41 Pages Posted: 23 Mar 2016
Date Written: March 23, 2016
We model firms as sets of scarce capabilities, where each capability provides a source of competitive advantage in some markets. Each market is also associated with a set of capabilities, those that are valued by it. Firm and market hypergraphs represent this information. Our approach provides a new perspective on several industrial organization literatures including merger analysis, strategic alliances and industry dynamics. We argue that merger analysis should be more holistic and that profitable joint ventures increase consumer surplus even when they reduce competition. We also provide formal foundations for a prominent theory of competitive advantage in the management literature.
JEL Classification: L22, L24, L40
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