Strategy

Strategic Management Journal

Strat. Mgmt. J., 22: 875–888 (2001) DOI: 10.1002/smj.173

COMPETITIVE ADVANTAGE: LOGICAL AND PHILOSOPHICAL CONSIDERATIONS

THOMAS C. POWELL*

Australian Graduate School of Management, Sydney, New South Wales, Australia

Strategic management theories invoke the concept of competitive advantage to explain firm 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. Copyright  2001 John Wiley & Sons, Ltd.

COMPETITIVE ADVANTAGE AS PERFORMANCE HYPOTHESIS

Strategic management research attempts to explain the sustained superior performance of firms (Rumelt, Schendel and Teece, 1994). The leading hypothesis is that sustained superior performance arises from sustainable competitive advantages (Barney, 1997; Grant, 1998; Roberts, 1999). Theories differ as to the sources of competitive advantage–for example, whether superior performance takes the form of monopoly rents to protected market positions (Caves and Porter, 1977; Porter, 1980); or Ricardian rents to idiosyncratic firmspecific resources (Lippman and Rumelt, 1982; Wernerfelt, 1984); or “Schumpeterian rents” to the dynamic capability to renew advantages over time (Winter, 1987; Teece, Pisano and Shuen,

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