Business
- Submitted by: james9
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- Category: Science
- Date Submitted: 01/29/2010 01:40 AM
- Pages: 8
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Resources-based theory
Threats to sustainability under all market structure:
- Regression to the mean: the firm should not be expected to keep performing extremely well or badly, as there are lots of factors which can affect firm performance, cannot be controlled
➢ One factor: powerful buyer & supplier -> share profit of a extremely well performed firm with their strong bargaining power, even the firm has inimitable advantages; BUT also return some gains to help the firm with extremely poor performance -> the firm facing strong buyer & supplier has threats on its profit sustainability as it is more unlikely to experience the extreme performance
Profit persistence evidence: Mueller’s findings
- Profit persistence: firms having profit that is higher than the average now should remain the performance; firms with lower than average profit now also should keep stable performance with low profit
Mueller’s study of profit persistence
Study results:
- With the average industry ROA at 6%, extremely high profit firms with about 12% ROA will experience a profit decrease towards the average level during a period of time, approaching ROA about 8%; while firms with abnormally low profit with about 0% ROA will get an increase in its profit, reaching about 4.9%
- BUT: the two groups of firms get closer but won’t finally converge to a common mean -> the firms with initially high profit will reach the profitability rate that are still higher than that of the firms with low profit at first
- Further implication: market forces threat the profit, BUT only to a certain extent -> other forces seems to protect profitable firms
➢ the forces protect firm’s competitive advantage and allow its profit persistence -> the sources of the firm’s competitive advantage may be difficult to imitate so that its advantage is sustained for a long time
Sustainable competitive advantage:
The Resource-based Theory of the firm...
Threats to sustainability under all market structure:
- Regression to the mean: the firm should not be expected to keep performing extremely well or badly, as there are lots of factors which can affect firm performance, cannot be controlled
➢ One factor: powerful buyer & supplier -> share profit of a extremely well performed firm with their strong bargaining power, even the firm has inimitable advantages; BUT also return some gains to help the firm with extremely poor performance -> the firm facing strong buyer & supplier has threats on its profit sustainability as it is more unlikely to experience the extreme performance
Profit persistence evidence: Mueller’s findings
- Profit persistence: firms having profit that is higher than the average now should remain the performance; firms with lower than average profit now also should keep stable performance with low profit
Mueller’s study of profit persistence
Study results:
- With the average industry ROA at 6%, extremely high profit firms with about 12% ROA will experience a profit decrease towards the average level during a period of time, approaching ROA about 8%; while firms with abnormally low profit with about 0% ROA will get an increase in its profit, reaching about 4.9%
- BUT: the two groups of firms get closer but won’t finally converge to a common mean -> the firms with initially high profit will reach the profitability rate that are still higher than that of the firms with low profit at first
- Further implication: market forces threat the profit, BUT only to a certain extent -> other forces seems to protect profitable firms
➢ the forces protect firm’s competitive advantage and allow its profit persistence -> the sources of the firm’s competitive advantage may be difficult to imitate so that its advantage is sustained for a long time
Sustainable competitive advantage:
The Resource-based Theory of the firm...