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date: 08 March 2021

Abstract and Keywords

This chapter reviews the main theories in strategic management that seek to explain persistent differences in profitability across companies. We argue that these differences are ultimately explained by market imperfections. Studying differences in financial performance through the lens of market imperfections provides several advantages. The framework allows executives to better understand the circumstances under which common strategic advice will in fact create a sustainable competitive advantage for their company. From a scholarly perspective, market imperfections help link seemingly disparate theories of strategic management to industrial organization and economics.

Keywords: strategic management, market imperfections, competitive advantage, five forces, resource-based theory, industrial organization

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