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. Some scholars have emphasized the way in which occupancy of well-defined position weakens competitive intensity because it reduces the motivation of the occupant to compete aggressively. Other scholars have drawn attention to the way in which the cumulating advantage inherent in a well-defined market gives rise to greater competitive strength. Integrating ideas from both perspectives, this paper proposes a holistic account of the relationship between occupancy of market position and development of capabilities. Occupancy of 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.