Integrated strategy: Residual market and exchange imperfections as the foundation of sustainable competitive advantage

Abstract

Market imperfections are central to understanding the mechanisms that permit firms to capture value. Many of these imperfections are competed away when firms struggle to attain and defend competitive advantages, making markets more efficient in the process. The remaining imperfections can become a primary impetus for government intervention. Hence, an understanding of residual market imperfections-those imperfections that persist after market competition and regulation are accounted for-must inform any assessment of the long-term attractiveness of firm strategies. Our framework provides an integrated view of competition and government intervention, two of the principal forces that influence variation in firm profitability.