Strategizing, Disequilibrium, and Profit

John A. Mathews is Professor of Strategy and Management at Macquarie Graduate School of Management, Sydney. He is the author of many studies of strategy emanating from emerging markets, including Dragon Multinational: A New Model of Global Growth (2002) and Tiger Technology: The Creation of a Semiconductor Industry in East Asia (2000).

"There has been a growing rebellion, both among economists and analysts of business strategy, against the static view of the competitive process contained in neoclassical economics, and movement towards the very different picture of the competitive environment within which firms operate put forth by Joseph Schumpeter and developed in modern economic evolutionary theory. This fine book places firms squarely within an environment marked by Schumpeterian competition, and develops the implications regarding business strategies that can work in such a context. This reorientation of theorizing about business strategy is much needed, and very well done." - Richard R. Nelson (Columbia University) "[T]his is a book that should be read by anyone who seeks to contribute to the theory of the firm. Mathews' efforts to retain the valuable ideas and constructs of economic, strategic management, and entrepreneurship theory, and to incorporate them into a realistic and usable framework, are admirable. The sweeping scope of his framework will allow individual scholars to see and understand how their research fits into the evolving theory of the firm and where their scholarly efforts should be directed in the future. Both economists and organizational theorists will learn a great deal from this refreshing work." - Academy of Management Review "Unlike most books on the theory of the firm, this one takes reality into account. Mathews has researched the semiconductor and other leading-edge industries, studied both small and large entrepreneurial firms, and analyzed trade agreements between nations. His accumulated wisdom is woven into a simple yet elegant framework, and his arguments for firm strategizing under conditions of disequilibrium are compelling. Both economists and organizational scholars will learn a great deal from this refreshing work." - Charles Snow (Penn State University) "I have no doubt that Strategizing, Disequilibrium, and Profit will become a classic in the field of strategic management, industrial organization, managerial economics, evolutionary economics, and business studies. I strongly recommend it to colleagues, researchers, students, and practitioners who continue to be fascinated by today's global world of economic change and firm dynamics." (Environment and Planning A)

• Contents Preface Acknowledgments List of abbreviations List of Charts 1. Introduction Strategizing vs. economizing; Outline of chapters 2. Capitalism is not and never can be a stationary system The Schumpeterian schema and dynamic competition vs. a comparative static framework: Structure, Conduct, Performance; Applications in a test case: the Flat Panel Display industry 3. Entrepreneurial profits can only be earned in disequilibrium The Knightian theory of profits; Strategic opportunities and earning profits in disequilibrium; Why Knightian profits vanish at perfectly competitive equilibrium 4. Rents vs. profits as strategizing goals Ricardian and monopoly rents - and their inadequacies as goals for strategizing; Organizational, managerial and entrepreneurial rents as illusory goals for firms 5. Strategizing is carried out by resource-based firms The Penrosean firm as vehicle for strategizing; Fundamental strategic categories of the firm: Resources, activities and routines; Strategic goals associated with resources: complementarities; with activities: increasing returns; and with routines: learning by doing 6. No firm is an island: Strategizing in networks The firm with its multiple connections; Resources, activities and routines at the network level, and strategic goals associated with them 7. The economy as a whole: Entrepreneurial, industrial and evolutionary dynamics The Schumpeterian notion of the economy as a whole, linkingstrategizing via entrepreneurial dynamics to industrial dynamics and evolutionary dynamics 8. Strategizing in disequilibrium: Comparative static vs. dynamic frameworks The workings of the framework as a totality; Generation of an Activities-based view of strategizing, a Resources-based view, and a Routines-based view (or Dynamic capabilities perspective), in both comparative static and dynamic settings 9. Towards a unified theory of management The advantages for management of adopting a consistent disequilibrium framework - not least in developing a platform for the unification of the functional disciplines of management Appendix. Entrepreneurship and economics: A case of shocking neglect References Index