Temporary Competitive Advantages and Firm Profitability: The Role of Alliance Network Structures

Abstract

Temporary advantages theory suggests that firms can outperform rivals in hypercompetitive environments by frequently launching competitive, innovative and pioneering actions. However, when firms introduce new actions with increasing frequency, they face acceleration-cost tradeoffs; as action becomes more frequent, the costs for developing actions rise exponentially, negatively affecting profitability. This study shows that action frequency affects firm profitability in a curvilinear, inverted U-shaped pattern; as action frequency increases, profitability diminishes. This pattern can be altered – firms can weaken acceleration-cost tradeoffs and enhance profitability by developing appropriate alliance network structures. For firms pursuing moderate levels of action frequency, both dense and sparse network structures can enhance profitability. For firms pursuing low or very high action frequency, sparse networks are advantageous.