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The dynamics of wealth, profit, and sustainable advantage

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  • Michael G. Jacobides
  • Sidney G. Winter
  • Stefan M. Kassberger

Abstract

This paper shows how idiosyncratic resources can drive sustained profitability and persistent heterogeneity under competitive conditions. Generic inputs purchased in the market become idiosyncratic resources as the result of firms' investments in customization. Analytically, we show how heterogeneous firms coexist in equilibrium as a function of customization costs. Computationally, we show that sustainable profits can emerge without ‘monopolistic’ imperfections. We consider how capability heterogeneity, resource customization cost, and ease of expansion interact to drive short‐run and sustainable profits. Our results illustrate that sustainable profits may represent a small part of the total wealth created over time by a firm or industry, and that changes in factors shaping a sector's evolutionary trajectory may be more important than changes in factors that determine profits' ultimate sustainability. Copyright © 2012 John Wiley & Sons, Ltd.

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  • Michael G. Jacobides & Sidney G. Winter & Stefan M. Kassberger, 2012. "The dynamics of wealth, profit, and sustainable advantage," Strategic Management Journal, Wiley Blackwell, vol. 33(12), pages 1384-1410, December.
    • Handle: RePEc:bla:stratm:v:33:y:2012:i:12:p:1384-1410
    DOI: 10.1002/smj.1985
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    Cited by:

    1. Alexandre Garel & Arthur Petit-Romec, 2021. "Engaging Employees for the Long Run: Long-Term Investors and Employee-Related CSR," Journal of Business Ethics, Springer, vol. 174(1), pages 35-63, November.
    2. Hong, Paul & Jagani, Sandeep & Kim, Jinhwan & Youn, Sun Hee, 2019. "Managing sustainability orientation: An empirical investigation of manufacturing firms," International Journal of Production Economics, Elsevier, vol. 211(C), pages 71-81.
    3. Jinhwan Kim & Hyeob Kim & HyukJun Kwon, 2019. "Corporate Social Responsibility Activity Combinations for Sustainability: A Fuzzy Set Analysis of Korean Firms," Sustainability, MDPI, vol. 11(24), pages 1-20, December.
    4. Nicola Cetorelli & Michael G. Jacobides & Samuel Stern, 2021. "Mapping a sector's scope transformation and the value of following the evolving core," Strategic Management Journal, Wiley Blackwell, vol. 42(12), pages 2294-2327, December.
    5. Phebo D. Wibbens & Nicolaj Siggelkow, 2020. "Introducing LIVA to measure long‐term firm performance," Strategic Management Journal, Wiley Blackwell, vol. 41(5), pages 867-890, May.
    6. Björn Michaelis & Shalini Rogbeer & Lars Schweizer & Zafer Özleblebici, 2021. "Clarifying the boundary conditions of value creation within dynamic capabilities framework: a grafting approach," Review of Managerial Science, Springer, vol. 15(6), pages 1797-1820, August.
    7. Belussi, Fiorenza & Orsi, Luigi & Savarese, Maria, 2019. "Mapping Business Model Research: A Document Bibliometric Analysis," Scandinavian Journal of Management, Elsevier, vol. 35(3).
    8. Phebo D. Wibbens, 2021. "The role of competitive amplification in explaining sustained performance heterogeneity," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1769-1792, October.

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