The dynamics of position, capability, and market competition

This paper focuses on the dynamic relationship between the occupancy of market position and the development of organizational capabilities. The literature divides into two seemingly contradictory views. One is that the insulating effects of position undercut the motivation for the development of capabilities and accordingly leads to the erosion of competitive intensity. A second view is that the occupancy of market position gives rise to cumulative advantage; position enables the development of capabilities that enhance an organization's competitive intensity, which in turn reinforces position. Integrating ideas from both perspectives, this paper proposes a holistic account of the relationship between the occupancy of position and the development of capabilities. Occupancy of market position undercuts the development of capabilities, but it facilitates cumulative advantage by leaving the occupant in a privileged position to extend that position through the superior leverage of existing exchange relationships and the formation of new exchange relationships. Evidence for this account comes from an examination of Formula One Racing.