The Competitive Advantage of Firms in Environments of Restricted Bargaining and Adjustment Costs

Abstract

This paper re-examines the results from Value Based and Resource Based approaches to the meaning and measurement of competitive advantage, under the realistic assumptions of restricted bargaining that limit the side payments among buyers and sellers, and adjustment costs that set a time frame for the decisions leading to the advantages. The extension modifies some of the existing results on competitive advantage from these theories. In the Value Based approach the paper challenges the prediction that a necessary condition for value appropriation by a market player is that the player creates positive incremental value. With respect to the Resource Based approach the paper challenges that this theory of the firm provides an “efficiency” perspective on competitive advantage.

Keywords: Competitive advantage, value creation, unrestricted and restricted bargaining, adjustment cost

JEL Classification: M21