Four Rs of Profitability: Rents, Resources, Routines, and Replication

Abstract

This paper seeks to connect related strands of thought in evolutionary economics and the resource-based view of the firm. Although conceived primarily as an approach to the descriptive analysis of the firm and industry, evolutionary economics offers a distinctive view of the firm that is adaptable for the purposes of normative analysis (Winter 1987). The resource-based view, as it has been developed in the strategy literature, seeks to derive normative guidance for business decision making from a deeper understanding of the sources of interfirm profitability differences (Wernerfelt 1984; Rumelt 1984). It interprets these as reflections of differences in streams of rents and quasi-rents accruing to firms, which in turn are attributed to differences in the control and management of strategic resources.