IMITATION AND THE SUSTAINABILITY OF COMPETITIVE ADVANTAGE.

Abstract

The sustainability of competitive advantage has received considerable attention from economists and scholars in strategic management over the last four decades. Research on this issue began with the fundamental question about the existence of competitive advantage altogether. Neo-classical economics suggests profits of all firms in an industry converge over time towards the competitive equilibrium and implies that abnormal or excess profits are a disequilibrium phenomenon. It is interesting to note that research has primarily focused on new entry as the mechanism by which competition is assumed to erode excess firm profits. In this paper, we explore another mechanism that is capable of eroding excess profits-imitation. We use simulation to demonstrate interorganizational imitation can erode abnormal profitability in an industry, and find evidence that continuous firm level strategic innovation is capable of sustaining abnormal profits indefinitely. Simulation results demonstrate the internal validity of this theoretical argument and generate new propositions for future empirical testing that may disentangle the effects of imitation.