The concept of competitive advantage was defined in Chapter 1. There, it was suggested that a firm has a competitive advantage when it is able to create more economic value than the marginal firm in its industry. How- ever, as important as it is to explain the existence of competitive advantages among firms, the sustainability of these advantages is also important. Some competitive advantages are fleeting, others can be long lasting. In resource- based logic, a firm is said to have a sustained competitive advantage when it is creating more economic value than the marginal firm in its industry and when other firms are unable to duplicate the benefits of this strategy. A couple of comments about sustained competitive advantage are in order. First, unlike the concept of competitive advantage, sustained competi- tive advantage does not focus exclusively on a firm’s competitive position vis-à-vis firms that are already operating in its industry. Rather, following Baumol, Panzar, and Willig (1982), a firm’s competition is assumed to include not only all of its current competitors, but also potential competi-tors poised to enter an industry at some future date.
Second, the definition of sustained competitive advantage adopted here does not necessarily depend on the period of calendar time during which a firm enjoys a competitive advantage. One indicator that a firm may have a sustained competitive advantage is that it has a competitive advantage that lasts a long time (Porter 1985; Jacobsen 1988). However, in some industry settings, a sustained competitive advantage may not last a long period of calendar time. In such settings, it may be possible for a firm to have a competitive advantage that lasts for a relatively short period. But if that advantage is not competed away through other firms duplicating the strategy of the firm with a competitive advantage, then that advantage may still have been sustained.
The imperfect link between the calendar time a firm enjoys a competitive advantage and the concept of a sustained competitive advantage reflects the fact that the sustainability of a competitive advantage ultimately depends on what might be called the ‘condition of duplication’. If current and potential firms are unable to duplicate the competitive advantage of a successful firm, that firm’s competitive advantage is sustained. In this sense, the ‘condition of duplication’ is analogous to the ‘condition of entry’ in many SCP-based models of firm performance (Bain 1968) and, following Lippman and Rumelt (1982) and Rumelt (1984), the resulting definition of sustained competitive advantage can be thought of as an equilibrium definition.
However, that a firm has a sustained competitive advantage does not mean that its competitive advantage will last forever. Changes in technol- ogy, demand, and the broader institutional context within which a firm operates can all make what used to be a source of sustained competitive advantage no longer valuable.
These kinds of changes have been called ‘Schumpeterian Shocks’ by several authors (Schumpeter 1934, 1950; Rumelt and Wensley 1981a; Barney 1986c). Such shocks redefine which of a firm’s resources are valu- able and which are not. Some of these resources, in turn, may be sources of sustained competitive advantage in the newly defined industry structure (Barney 1986c). However, what were resources in a previous industry set- ting may be weaknesses, or simply irrelevant, in a new industry setting. A firm enjoying a sustained competitive advantage may experience these major shifts in the structure of competition and may see its competitive advantages nullified by such changes. Just as being the world’s best buggy whip manufacturer is not a source of sustained competitive advantage in a world dominated by automobiles, so too can political connections that were a source of sustained competitive advantages in one political regime no longer be a source of sustained competitive advantage if that regime is overthrown. In all these cases, however, a sustained competitive advantage is not lost through the efforts of other firms to duplicate the bases of these advantages. Rather, this sustained competitive advantage is replaced when alternative technologies, changes in demand, or other changes take place.
Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.