Theories of Strategy
University of Amsterdam
Exam Document
Contains:
Concise and relevant information
All readings included
All principles of strategy included
References to the cases
Comparisons across different weeks
Ready for the exam.
1
, 1. Stoelhorst “Thinking about strategy” (2008): the field of strategic management has
developed from the design school (strategy as a conceptual process) to the planning
school (strategy as a formal process), to the positioning school (strategy as fit; Porter) to
the resource-based school (strategy as stretch; Barney & Peteraf), to the process school
(strategy as collective learning).
2. At the heart, economics informs strategic management (which informs management). At
the core is neoclassical economics and the notion of perfect competition. There are
different views that provide different ways of thinking in economics, influencing strategic
management.
3. The neoclassical model of perfect competition assumes large numbers (of buyers and
sellers, where firms are price takers), homogeneity (of demand, with standardized
products), mobility (perfect mobility of resources, where entry and exit for competing
firms are free), rationality (where buyers and sellers have complete information and
maximize their utility and profit) and transaction cost (where transactions are costless).
This model assumes agents respond to price signals (price competition) and no
opportunity cost is left (due to free entry and exit), it assumes firms are production
functions (black boxes) and rationally respond to prices (unitary agents), and it assumes
that humans are homo economicus as they maximize utilities as buyers and profit as
firms (fully rational) and as they are self-interested.
a. Principle 1: when the assumptions of the model of perfect competition are met,
there is no room for performance differences: there are no sources of competitive
advantage, all firms are identical and earn zero economic profit (Besanko et al.
“Economics of strategy”, 2000: considering opportunity profit/cost, compared to
accounting profit/cost).
i. Any deviation from the assumptions of the model of perfect competition is
a possible source of competitive advantage that can lead to performance
differences.
4. Rumelt “What in the world is competitive advantage?” (2003): there are different
definitions of competitive advantage (it is an ambiguous concept), but a first start states
that performance differences arise from competitive advantage, which arises from
sources of competitive advantage.
5. Conner “A Historical Comparison of Resource-based Theory and Five Schools of
Thought within Industrial Economics: Do we Have a New Theory of the Firm?” (1991):
there may be different sources of competitive advantage.
a. Innovation (Schumpeter), costly-to-copy resources (Ricardo; RBV High Church),
process efficiencies (Chicago) or market power (Bain-type IO; positioning Porter
IO) may lead to performance differentials.
6. Positional views of competitive strategy explain differences in performance in terms
of the characteristics of the competitive situation that prevails at a particular point in time.
Hence, positional views assume competition is an equilibrium phenomenon (not
dynamic), firms are seen as black boxes and unitary agents (not resources) and firms
are rational actors that maximize profits (ignoring uncertainty and cognitive biases).
7. Bain-type industrial organization (IO) observes differences in industry structure
(concentration1 and entry barriers) and considers that there may be differences in firm
conduct within those industries (controlling output, collusion, predatory pricing,
advertising, R&D) potentially giving them market power, which explain performance
differences (economic profit).
a. The purpose is to understand how to make industries more competitive to
increase social welfare.
b. Industries differ from each other in terms of their structure, as some industries are
more attractive than others. Due to barriers to competition (entry and exit
barriers) these differences are relatively stable. Differences between industries in
1
Antitrust case: if industries are more concentrated, there is less competition and firms have more market power.
2
University of Amsterdam
Exam Document
Contains:
Concise and relevant information
All readings included
All principles of strategy included
References to the cases
Comparisons across different weeks
Ready for the exam.
1
, 1. Stoelhorst “Thinking about strategy” (2008): the field of strategic management has
developed from the design school (strategy as a conceptual process) to the planning
school (strategy as a formal process), to the positioning school (strategy as fit; Porter) to
the resource-based school (strategy as stretch; Barney & Peteraf), to the process school
(strategy as collective learning).
2. At the heart, economics informs strategic management (which informs management). At
the core is neoclassical economics and the notion of perfect competition. There are
different views that provide different ways of thinking in economics, influencing strategic
management.
3. The neoclassical model of perfect competition assumes large numbers (of buyers and
sellers, where firms are price takers), homogeneity (of demand, with standardized
products), mobility (perfect mobility of resources, where entry and exit for competing
firms are free), rationality (where buyers and sellers have complete information and
maximize their utility and profit) and transaction cost (where transactions are costless).
This model assumes agents respond to price signals (price competition) and no
opportunity cost is left (due to free entry and exit), it assumes firms are production
functions (black boxes) and rationally respond to prices (unitary agents), and it assumes
that humans are homo economicus as they maximize utilities as buyers and profit as
firms (fully rational) and as they are self-interested.
a. Principle 1: when the assumptions of the model of perfect competition are met,
there is no room for performance differences: there are no sources of competitive
advantage, all firms are identical and earn zero economic profit (Besanko et al.
“Economics of strategy”, 2000: considering opportunity profit/cost, compared to
accounting profit/cost).
i. Any deviation from the assumptions of the model of perfect competition is
a possible source of competitive advantage that can lead to performance
differences.
4. Rumelt “What in the world is competitive advantage?” (2003): there are different
definitions of competitive advantage (it is an ambiguous concept), but a first start states
that performance differences arise from competitive advantage, which arises from
sources of competitive advantage.
5. Conner “A Historical Comparison of Resource-based Theory and Five Schools of
Thought within Industrial Economics: Do we Have a New Theory of the Firm?” (1991):
there may be different sources of competitive advantage.
a. Innovation (Schumpeter), costly-to-copy resources (Ricardo; RBV High Church),
process efficiencies (Chicago) or market power (Bain-type IO; positioning Porter
IO) may lead to performance differentials.
6. Positional views of competitive strategy explain differences in performance in terms
of the characteristics of the competitive situation that prevails at a particular point in time.
Hence, positional views assume competition is an equilibrium phenomenon (not
dynamic), firms are seen as black boxes and unitary agents (not resources) and firms
are rational actors that maximize profits (ignoring uncertainty and cognitive biases).
7. Bain-type industrial organization (IO) observes differences in industry structure
(concentration1 and entry barriers) and considers that there may be differences in firm
conduct within those industries (controlling output, collusion, predatory pricing,
advertising, R&D) potentially giving them market power, which explain performance
differences (economic profit).
a. The purpose is to understand how to make industries more competitive to
increase social welfare.
b. Industries differ from each other in terms of their structure, as some industries are
more attractive than others. Due to barriers to competition (entry and exit
barriers) these differences are relatively stable. Differences between industries in
1
Antitrust case: if industries are more concentrated, there is less competition and firms have more market power.
2
