Strategic factor markets: Expectations, luck, and business strategy

Citation: Jay B. Barney (1986) Strategic factor markets: Expectations, luck, and business strategy. Management Science (RSS)
Internet Archive Scholar (search for fulltext): Strategic factor markets: Expectations, luck, and business strategy
Tagged: Business (RSS) economics (RSS), markets (RSS), RBV (RSS)

Summary

Barney frames his article largely in terms of Porter's (1980) Competitive strategy: Techniques for analyzing industries and competitors and his five forces model. Barney argues that good positions and the resources necessary to carry out a good business strategy do not freely to organizations.

Barney introduces the concept of a strategic factor market which contains the resources necessary to carry out a particular strategy. In other words, resources that leads to a strong competitive position must usually be acquired. If one needs to go to a market to buy these, an efficient market will price these resources at the level of their strategic value. Firms will gain a strategic advantage under imperfect competition which is only possible when firms have different expectations about the value of the resources on the strategic market. Firms can only gain a competitive advantage if they can buy at least some of the resources necessary to carry out their strategy for under the net present value of those inputs.

In a way that follows the RBV very closely, Barney's contribution is to shift the argument from strategy as a means of taking advantage of imperfections in product markets to one of strategic factor markets. These markets are more likely to have imperfections for a variety of reasons. One important reason is that it is based on expectations of value which, for some reasons, firms will have a difficult time predicting equally accurately. He also suggests that luck will play a role in terms of who has resources that end up being necessary to carry out a particular strategy.

Strategy is only possible in Barney's model because nob firm has perfect information and the markets are always very imperfect due to differing expectations. The rest is luck.

Theoretical and Practical Relevance

Although Barney's 1986 article does not cite Wernerfelt's (1984) A resource-based view of the firm, it is usually cited as a seminarl article in the resource-based view of the firm. Barney's later work was explicitly engaged in the RBV literature.

His statement that is insufficient to just look at external environments can be seen directly as a critique of Porter.