Strategists following the resource-based view argue that firms can generate rents through value creation. To create value, firms develop and use resources and capabilities that other firms cannot imitate, trade for, or substitute other assets for. Even a firm that has created value, however, may not capture the potential rents associated with that value. To capture rents, a firm must set the right prices for what it sells. Most views of pricing assume that a firm can readily set appropriate prices. In contrast, we argue that pricing is a capability. To develop the ability to set the right prices, a firm must invest in resources and routines. We base our argument on a study of the pricing process of a large Midwestern manufacturing firm. We show that pricing resources, routines, and skills may help or inhibit a firm in setting the right price—and hence in appropriating value created. Our view of pricing as a capability contributes to the resource-based view because it suggests that strategists should consider the portfolio of value creation and value appropriation capabilities a firm uses to create competitive advantage. Our view also contributes to economics because it suggests that strategic decisions about pricing capabilities have important implications for a fundamental economic action, determining prices. Managers in firms without effective pricing processes may be unable to set prices that reflect the wishes of its customers, so the customers may misuse their resources. As a result, resources may be used ineffectively. Our view of pricing as a capability therefore takes the resource-based-view straight to the heart of what is perhaps the central economic question: the best use of resources.

Two distinct causal mechanisms—resource-picking and capability-building—have been proposed in the strategic management literature about how firms create economic rents. Under the resource-picking mechanism, managers gather information and analysis to outsmart the resource market in picking resources, similar to the way that a mutual fund manager tries to outsmart the stock market in picking stocks. Under the capability-building mechanism, managers design and construct organizational systems to enhance the productivity of whatever resources the firm acquires. These two rent-creation mechanisms are certainly not mutually exclusive, and it is likely that firms generally use both of them. It is therefore important to consider the interaction between these two rent-creation mechanisms: Do they complement each other? Or are they substitutes for each other? In other words, do they enhance each other's value, or detract from each other's value? Answering these questions is a necessary precondition to understanding how firms should allocate their time and effort between these two rent-creation mechanisms. The present paper develops a basic theoretical model to address these questions, and derives testable hypotheses from the model. The model predicts that the two rent-creation mechanisms are complementary in some circumstances but substitutes in others.

This article reflects upon and updates our prize-winning paper, ‘First-mover advantages,’ which was published in SMJ 10 years ago. We discuss the evolution of the literature over the past decade and suggest opportunities for continuing research. In particular, we see benefits from linking empirical findings on first-mover advantages with the complementary stream of research on the resource-based view of the firm

This study examines the drivers of competitive advantage within the hospital industry. Specifically,
we examine both the direct and joint effects of market structure, firm-level competencies, and inter organizational relationships on organizational performance. The results of this approach indicated that managers, through their strategic actions related to the capabilities and relationships they develop and deploy, can establish advantageous competitive positions and influence the negative effects of market structure by developing important strategic competencies.

This paper explores how the dynamic capabilities of firms may account for the emergence of differential firm performance within an industry. Synthesizing insights from both strategic and organizational theory, four performance-relevant attributes of dynamic capabilities are proposed: timing of dynamic capability deployment, imitation as part of the search for alternative resource configurations, cost of dynamic capability deployment, and learning to deploy dynamic capabilities. Theoretical propositions are developed suggesting how these attributes contribute to the emergence of differential firm performance. A formal model is presented in which dynamic capability is modeled as a set of routines guiding a firm’s evolutionary processes of change. Simulation of the model yields insights into the process of change through dynamic capability deployment, and permits refinement of the theoretical propositions. One of the interesting findings of this study is that even if dynamic capabilities are equifinal across firms, robust performance differences may arise across firms if the costs and timing of dynamic capability deployment differ across firms.

This paper focuses on dynamic capabilities and, more generally, the resource-based view of the firm. We argue that dynamic capabilities are a set of specific and identifiable processes such as product development, strategic decision making, and alliancing. They are neither vague nor tautological. Although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence, they have significant commonalities across firms (popularly termed ‘best practice’). This suggests that they are more homogeneous, fungible, equifinal, and substitutable than is usually assumed. In moderately dynamic markets, dynamic capabilities resemble the traditional conception of routines. They are detailed, analytic, stable processes with predictable outcomes. In contrast, in high-velocity markets, they are simple, highly experiential and fragile processes with unpredictable outcomes. Finally, well-known learning mechanisms guide the evolution of dynamic capabilities. In moderately dynamic markets, the evolutionary emphasis is on variation. In high-velocity markets, it is on selection. At the level of RBV, we conclude that traditional RBV misidentifies the locus of long-term competitive advantage in dynamic markets, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high-velocity markets.

What if rent from a competitive advantage is appropriated so it cannot be observed in performance measures'? The resource based view was not formulated to examine who will get the rent. Yet, this essay argues that the factors leading to a resource based advantage also predict who will appropriate rent. Knowledge-based assets are promising because firm-specificity, social complexity, and causal ambiguity make them hard to imitate. However, the roles of internal stakeholders may grant them a great deal of bargaining power especially relative to investors. This essay integrates the resource-based view with the bargaining power literature by defining the firm as a nexus of contracts. This new lens can help to explain when rent will be generated and, simultaneously, who will appropriate it. In doing so, it provides a more robust theory of firm performance than the resource-based view alone. It is also suggested that this lens might be useful for examining other theories of firm performance.

performance, and empirical research investigates competitive advantage and describes how it operates. But as a performance hypothesis, competitive advantage has received surprisingly little formal justification, particularly in light of its centrality in strategy research and practice. As it happens, the core hypothesis—that competitive advantage produces sustained superior performance— finds little support in formal deductive or inductive inference, and the leading theories of competitive advantage incorporate refutation barriers that preclude meaningful empirical tests. This article explores the logical and philosophical foundations of the competitive advantage hypothesis, locating its philosophical foundations in the epistemologies of Bayesian induction, abductive inference and an instrumentalist, pragmatic philosophy of science.