Sustainable Competitive Disadvantage: Toward a Socio-Economic View of Firm Performance

Abstract

We examine the mirror image of sustained competitive advantage, namely, sustainable competitive disadvantage. We begin by reviewing the theoretical and empirical literature on sustained competitive advantage. Our review suggests it’s not just firms in superior positions that sustain their performance, but also firms in the remainder of the performance spectrum, including those occupying positions around and below the norm. These latter firms neither improve their performance over time nor are they eliminated by competitive forces, suggesting the existence of sustainable competitive disadvantage. Next, we draw on status based theories of competition, in particular mid-status conformity theory, to explain the coexistence of sustained advantage and sustainable disadvantage in the performance distribution of firms. In our theorizing, we distinguish between three performance levels corresponding to above, around, and below the norm which we label sustainable superiority, sustainable normalcy, and sustainable inferiority. Our thesis is that a performance distribution with these features reflects a reinforcing homology between social status stratification and economic performance stratification that obtains in equilibrium. Our framework highlights the need for theory that explains the entire performance distribution of firms, while suggesting that competitive advantage and disadvantage are outcomes of both social and economic forces in an industry.