Economic foundations of strategic management on the economic conceptualisation of the nature and sustainability of profit differentials among firms.

One of the enduring problems facing researchers of strategic management is the lack of theoretical foundations available to describe, explain and predict the behaviour of firms and markets. Strategic management theory seems to be strongly focused on empirical issues rather than theoretical and methodological ones. By contrast, economics, which, like strategic management theory, is interested in firm and market behaviour, may be particularly strong at theoretical and methodological issues. The present study develops the thesis that economic conceptualisations of the firm and of the market can help to further the development of strategic management theory. The study constructs theoretical linkages between basic propositions and assumptions of strategic management theory and those of economic theories of the market and of the firm. The study builds such conceptual bridges between strategic management theory and economics by assessing (1) neoclassical economics, economics of industrial organisation, evolutionary economics, institutional economics, behavioural economics, and (2) the strategic management theories, namely, the positioning approach (Porter) and resource-based approach (Wernerfelt, Rumelt, Barney). By examining research problem orientation and hard core assumptions, as suggested by Kuhn and Lakatos, the study found that apart from neoclassical economics, other economic theories allow to substantiate strategic management theory in economic terms. In specific, the study explicated that there is a large overlap between economics and strategic management theory for explaining and predicting issues concerning (1) the sources of profit differentials (competitive advantage), (2) the reasons how differentials are sustained despite competition, and (3) the conceptualisation of differentials as outcome of strategy following behaviour of firms under conditions of uncertainty.