The determinants of competitive advantage: a critical appraisal

Abstract

The thesis deals with the means whereby a firm can gain a competitive advantage over its rivals. After considering how this issue is dealt with in the management literature, the thesis focuses on two possible routes to competitive advantage. The first is largely internal to the firm, and concerns the design of managerial contracts to provide managers with the incentives to act in the best interests of shareholders. The second route is external, involving strategic market moves in relation to rival firms. These two possible routes to competitive advantage are appraised in light of recent theoretical developments in 1principal-agent analysis the internal route, and the new industrial economics the external route. The final section of the thesis is empirical and deals with the share price experience of the top 100 U. K. companies since 1970. The econometric notion of cointegration is employed to test for the existence of sustained competitive advantage. The tentative conclusion reached is that while companies may be able to achieve a sustained competitive advantage, the compensation contracts employed have not been a successful means of obtaining such advantage. The suggestion is that external routes to competitive advantage might be more effective.