Uncertain Imitability

Abstract

‘Uncertain imitability’ refers to firm-based capability that is difficult to imitate and developed under conditions of ex ante uncertainty about the future value of the capability as a source of competitive advantage. The concept has been applied in an economic model of firms’ market entry decisions, in which firms choosing to enter a market invest in and develop new production capabilities but face ex ante uncertainty about the degree to which the capabilities realized ex post will match or improve upon the efficiency of existing competitors in the industry (Lippman and Rumelt, Bell Journal of Economics 13:418–438, 1982). In such situations, excess industry profits signal the presence of valuable, firm-based capabilities that are difficult for competitors to imitate, thereby impeding rational market entry attempts that would otherwise eliminate the excess profits of firms with such capabilities. The presence of such firm-based capabilities can generate a competitive market equilibrium in which there are stable inter-firm differences in profitability and above-normal industry rates of return. The theory provides a point of departure from previous literature that explains sustainable profits based on industry organizational structure.

This entry was originally published on Palgrave Connect under ISBN 978-1-137-49190-9. The content has not been changed.