Compare and contrast the industrial organization (I/O) and resource-based views (RBV) on competitive advantage. 1. How does each develop a competitive advantage? 2. What is the focus of each view? 3. What are their determinants of profitability?  

The industrial organization perspective focuses on external factors in the marketplace, while proponents of a resource-based view focus on internal matters within the company.

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Proponents of the industrial organization model believe that a firm’s competitive advantage is based on external factors. According to this model, a company will get ahead by observing the actions of competitors and predicting their next moves. Competitive advantage, therefore, is obtained by gaining information on what other players in the market are doing.

According to the resource-based perspective, on the other hand, competitive advantage comes from internal rather than external sources. In other words, it is the human capital of the business, the customer loyalty that has built up around the brand, and other assets that the business already has that will make it more successful. As the name implies, the company will develop its competitive advantage based on the resources that it has.

The focus of the industrial organization model is on the external forces which impact the relevant industry and on the actions of competitors. For those following a resource-based perspective, the...

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