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Firm Capabilities and Industry Structure

41 Pages Posted: 23 Mar 2016  

Jun Chen

California Institute of Technology

Matthew Elliott

California Institute of Technology - Division of the Humanities and Social Sciences

Date Written: March 23, 2016

Abstract

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

Suggested Citation

Chen, Jun and Elliott, Matthew, Firm Capabilities and Industry Structure (March 23, 2016). Available at SSRN: https://ssrn.com/abstract=2753566 or http://dx.doi.org/10.2139/ssrn.2753566

Jun Chen

California Institute of Technology ( email )

Pasadena, CA 91125
United States

Matthew Elliott (Contact Author)

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

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