Competitive Heterogeneity
- LAST REVIEWED: 14 December 2022
- LAST MODIFIED: 25 September 2019
- DOI: 10.1093/obo/9780199846740-0181
- LAST REVIEWED: 14 December 2022
- LAST MODIFIED: 25 September 2019
- DOI: 10.1093/obo/9780199846740-0181
Introduction
It is widely accepted that positioning for competitive advantage is related to how value is created and captured. Yet, despite substantial theoretical work on competitive advantage, empirical work has been less cohesive and accretive. Contributing factors include, but are not limited to, differences in conceptual definitions, misalignment between theory and operational designs, and variation in analytical approaches. In response, the theory of competitive heterogeneity emerged with the intent of providing a more comprehensive explanation of persistent differences in intra-industry performance, the core focus of the strategy field. Formally, competitive heterogeneity refers to enduring and systematic (superior) differences in strategic positioning—and, in turn, performance—among relatively close rivals, where a firm that produces the largest gap between the value (V) of a good or service to a buyer and the cost (C) of producing that value holds an advantage, or superior position, relative to that of rivals. The theory adopts a bargaining model (Value-Price-Cost) to define superior performance differences independently of resources and capabilities. If resources or capabilities associated with performance heterogeneity are not protectable, then the persistence of an advantage must be associated with something other than costly imitation. It follows, then, that important sources of value and cost differences among firms may lie outside the Resource-Based View’s (RBV’s) boundaries. As such, work on competitive heterogeneity has broader theoretical roots than the RBV. Additionally, research on the factors and conditions promoting persistent and systematic (superior) differences in performance among firms benefits from the integration of multiple theoretical lenses, research methods, and techniques. This diversity informs a wide array of research topics (e.g., the Value-Price-Cost model; value-based strategies; value creation and value capture dynamics; value appropriation; performance heterogeneity; persistent performance heterogeneity; temporary advantage; isolating mechanisms and barriers to imitation; micro and macro influences) and employs a host of analytical techniques (empirical, descriptive, formal theory, mathematical modeling). This bibliography discusses the contributions from these complementary areas but the bibliography’s scope (and page limits) precludes a detailed treatment of all areas that intersect with competitive heterogeneity and its origins. As a result, and guided by the definition of competitive heterogeneity, this annotated bibliography provides an overview of the primary research streams, with specific attention to influential writings and those that detail the scope of contributions in an area. The research topics are presented in a particular order, beginning with the theory’s core, the Value-Price-Cost bargaining model, conceptual definitions, and theoretical insights, and then shifting to empirical studies on performance heterogeneity, persistent advantage, and value creation and capture.
The Theory of Competitive Heterogeneity: Introduction
According to Hoopes, et al. 2003, competitive heterogeneity refers to enduring and systematic (superior) differences in strategic positioning, and, in turn, performance, among relatively close rivals, where a firm that produces the largest gap between the value (V) of a good or service to a buyer and the cost (C) of producing that value holds an advantage, or superior position, relative to that of rivals. Value is defined as the price a buyer is willing to pay for a good in the absence of competing products or services yet within budget constraints and having considered other purchasing opportunities. In this model adopted from Tirole, a buyer and supplier bargain over the price (P) for a good that creates a value (V) or benefit to the buyer and costs the supplier some amount (C) to produce; the buyer captures a surplus (Value minus Price, V-P) and the supplier captures a profit (Price minus Cost, P-C). The firm that produces the largest difference between value and cost has an advantage over rivals. It can either attract buyers due to greater surplus it creates for them (V-P), capture a larger profit (P-C), or both; for additional discussion, see Hoopes, et al. 2003 and Peteraf and Barney 2003. The theory yields several insights. For one, two rivals may hold different bundles of inimitable resources and capabilities but achieve the same Value minus Cost gap. If we introduce industry constraints on bargaining over price, the dissimilar resources and capabilities of the two firms yield the same economic profit (P-C). The implication is that a resource or capability is only a potential source of advantage when it increases the difference between a firm’s value and cost relative to that of its rivals. Second, theories of sustainable heterogeneity typically focus on differences among firms in efficiency, rarely on differences in buyer value, and even more rarely on differences in both efficiency and buyer value simultaneously. Yet, as Adner and Zemsky 2006 and Besanko, et al. 1998 point out, ignoring the demand side reduces opportunities for understanding how resources may create a buyer surplus and in turn, potential sources of advantage. The VPC model considers both the demand side (V) and the supply side (C) of a transaction. Third, the theory does not equate competitive advantage with standard performance metrics (e.g., a firm’s income statement does not include buyer value [V]) and avoids risk of tautological reasoning since competitive advantage is defined independent of a firm’s resources and capabilities. Lastly, since the value captured by a firm may strengthen or erode over time due to shifts in competition or consumers’ valuations of the firm’s offerings, the theory allows for a more integrated analysis of sustained differences in strategic positioning by explicitly accounting for dynamic sources of heterogeneity; see Lippman and Rumelt 2003 and MacDonald and Ryall 2004 for additional discussion.
Adner, Ron, and Peter Zemsky. “A Demand-Based Perspective on Sustainable Competitive Advantage.” Strategic Management Journal 27.3 (2006): 215–239.
This study models how demand-side sources of heterogeneity (consumer heterogeneity and marginal utility) interact with supply- or firm-side sources of heterogeneity (resources, technology) to affect value creation and capture. Available online by subscription or purchase.
Besanko, David, Sachin Gupta, and Dipak Jain. “Logit Demand Estimation under Competitive Pricing Behavior: An Equilibrium Framework.” Management Science 44.11 (1998): 1533–1547.
Considering demand- and supply-side factors, the authors show that even when a firm’s strategy is “stuck in the middle” the firm can achieve a higher economic surplus than rivals based on a larger difference between its product value and the marginal cost to produce that value relative to rivals. Available online by subscription or purchase.
Hoopes, David G., Tammy L. Madsen, and Gordon Walker, eds. “Guest Editors’ Introduction.” In Special Issue: Why Is There a Resource-Based View? Toward a Theory of Competitive Heterogeneity.” Strategic Management Journal 24.10 (2003): 889–902.
The authors define and motivate the competitive heterogeneity logic, discuss how the theory and the VPC framework informs the study of strategic positioning and competitive advantage, and identify future research directions. Available online by subscription or purchase.
Lippman, Steven A., and Richard P. Rumelt. “A Bargaining Perspective on Resource Advantage.” Strategic Management Journal 24.11 (2003): 1069–1086.
Lippman and Rumelt emphasize that strategy is about creating, evaluating, managing and deploying unpriced specialized scarce resource combinations and use cooperative game theory to analyze how the (value) surplus is divided among agents (resources). Available online by subscription or purchase.
MacDonald, Glenn, and Michael D. Ryall. “How Do Value Creation and Competition Determine Whether a Firm Appropriates Value?” Management Science 50.10 (2004): 1319–1333.
This study uses cooperative game theory to explore the conditions under which parties in an exchange appropriate value. The logic is applied to various topics related to competitive advantage—for instance, whether uniqueness, inimitability, and competition ensure appropriation. Available online by subscription or purchase.
Peteraf, Margaret A., and Jay B. Barney. “Unraveling the Resource-Based Tangle.” In Special Issue: Integrating Management and Economic Perspectives on Corporate Strategy. Edited by J. Rajendran Pandian and Paul L. Robertson. Managerial and Decision Economics 24.4 (2003): 309–323.
In response to criticisms of the RBV, the authors offer a more precise definition of competitive advantage informed by the VPC model; in their construal, value is labeled as “perceived benefit”. Available online by subscription or purchase.
Users without a subscription are not able to see the full content on this page. Please subscribe or login.
How to Subscribe
Oxford Bibliographies Online is available by subscription and perpetual access to institutions. For more information or to contact an Oxford Sales Representative click here.
Article
- Abusive Supervision
- Adverse Impact and Equal Employment Opportunity Analytics
- Alliance Portfolios
- Alternative Work Arrangements
- Applied Political Risk Analysis
- Approaches to Social Responsibility
- Assessment Centers: Theory, Practice and Research
- Attitudes
- Attributions
- Authentic Leadership
- Automation
- Bayesian Statistics
- Behavior, Organizational
- Behavioral Approach to Leadership
- Behavioral Theory of the Firm
- Benefits
- Between Organizations, Social Networks in and
- Brokerage in Networks
- Business and Human Rights
- Career Studies
- Career Transitions and Job Mobility
- Certified B Corporations and Benefit Corporations
- Charismatic and Innovative Team Leadership By and For Mill...
- Charismatic and Transformational Leadership
- Compensation, Rewards, Remuneration
- Competitive Dynamics
- Competitive Heterogeneity
- Competitive Intensity
- Computational Modeling
- Conditional Reasoning
- Conflict Management
- Considerate Leadership
- Corporate Philanthropy
- Corporate Social Performance
- Corporate Venture Capital
- Counterproductive Work Behavior (CWB)
- Creativity
- Cross-Cultural Communication
- Cross-Cultural Management
- Cultural Intelligence
- Culture, Organization
- Data Analytic Methods
- Decision Making
- Diversity
- Dynamic Capabilities
- Emotional Labor
- Employee Aging
- Employee Engagement
- Employee Ownership
- Employee Voice
- Empowerment, Psychological
- Entrepreneurial Firms
- Entrepreneurial Orientation
- Entrepreneurship
- Entrepreneurship, Corporate
- Entrepreneurship, Women’s
- Equal Employment Opportunity
- Ethics
- Faking in Personnel Selection
- Family Business, Managing
- Feedback
- Financial Markets in Organization Theory and Economic Soci...
- Findings, Reporting Research
- Firm Bribery
- First-Mover Advantage
- Fit, Person-Environment
- Forecasting
- Founding Teams
- Global Leadership
- Global Talent Management
- Goal Setting
- Grounded Theory
- Hofstedes Cultural Dimensions
- Human Capital Resource Pipelines
- Human Resource Management
- Human Resource Management, Strategic
- Human Resources, Global
- Human Rights
- Humanitarian Work Psychology
- Humility in Management
- Impression Management at Work
- Imprinting
- Influence Strategies/Tactics in the Workplace
- Information Economics
- Innovative Behavior
- Intelligence, Emotional
- International Economic Development and SMEs
- International Economic Systems
- International Strategic Alliances
- Job Analysis and Competency Modeling
- Job Crafting
- Job Design
- Job Satisfaction
- Judgment and Decision Making in Teams
- Knowledge Sharing and Collaboration within and across Firm...
- Leader-Member Exchange
- Leadership Development
- Leadership Development and Organizational Change, Coaching...
- Leadership, Ethical
- Leadership, Global and Comparative
- Leadership, Strategic
- Learning by Doing in Organizational Activities
- Licensing
- Management History
- Management In Antiquity
- Managerial Discretion
- Meaningful Work
- Mentoring
- Multinational Corporations and Emerging Markets
- Neo-institutional Theory
- Neuroscience, Organizational
- New Ventures
- Organization Design, Global
- Organization Development and Change
- Organization Research, Ethnography in
- Organization Theory
- Organizational Adaptation
- Organizational Ambidexterity
- Organizational Behavior, Emotions in
- Organizational Citizenship Behaviors (OCBs)
- Organizational Climate
- Organizational Control
- Organizational Corruption
- Organizational Hybridity
- Organizational Identity
- Organizational Justice
- Organizational Legitimacy
- Organizational Networks
- Organizational Paradox
- Organizational Performance, Personality Theory and
- Organizational Responsibility
- Organizational Surveys, Driving Change Through
- Organizations, Big Data in
- Organizations, Gender in
- Organizations, Identity Work in
- Organizations, Political Ideology in
- Organizations, Social Identity Processes in
- Overqualification
- Passion
- Paternalistic Leadership
- Pay for Skills, Knowledge, and Competencies
- People Analytics
- Performance Appraisal
- Performance Feedback Theory
- Planning And Goal Setting
- Proactive Work Behavior
- Psychological Contracts
- Psychological Safety
- Real Options Theory
- Recruitment
- Regional Entrepreneurship
- Reputation, Organizational Image and
- Research, Ethics in
- Research, Longitudinal
- Research Methods
- Research Methods, Qualitative
- Resource Redeployment
- Resource-Dependence Theory
- Resources
- Response Surface Analysis, Polynomial Regression and
- Role of Time in Organizational Studies
- Safety, Work Place
- Selection
- Selection, Applicant Reactions to
- Self-Determination Theory for Work Motivation
- Self-Efficacy
- Self-Fulfilling Prophecy In Management
- Self-Management and Personal Agency
- Sensemaking in and around Organizations
- Service Management
- Shared Team Leadership
- Social Cognitive Theory
- Social Evaluation: Status and Reputation
- Social Movement Theory
- Social Ties and Network Structure
- Socialization
- Spin-Outs
- Sports Settings in Management Research
- Stakeholders
- Status in Organizations
- Strategic Alliances
- Strategic Human Capital
- Strategy
- Strategy and Cognition
- Strategy Implementation
- Stress
- Structural Contingency Theory/Information Processing Theor...
- Team Composition
- Team Conflict
- Team Design Characteristics
- Team Learning
- Team Mental Models
- Team Newcomers
- Team Processes
- Teams, Global
- Technology and Innovation Management
- Technology, Organizational Assessment and
- the Workplace, Millennials in
- Theory X and Theory Y
- Time and Motion Studies
- Training and Development
- Training Evaluation
- Trust in Organizational Contexts
- Turnover
- Unobtrusive Measures
- Validity
- Virtual Teams
- Whistle-Blowing
- Work and Family: An Organizational Science Overview
- Work Contexts, Nonverbal Communication in
- Work, Mindfulness at
- Workplace Aggression and Violence
- Workplace Coaching
- Workplace Commitment
- Workplace Gossip
- Workplace Meetings
- Workplace, Spiritual Leadership in the
- World War II, Management Research during