Rents vs. profits: what are the appropriate goals of strategising?

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Abstract

How firms earn profits remains the central topic within strategic management – and the most neglected. In this article, I contrast the pursuit by firms of Knightian profits with the more commonly held conceptualization that they seek rents. Knightian profits as residuals are extinguished at equilibrium, and can be earned only away from equilibrium. This gives rise to a threefold perspective on the competitive economy, and three conceptions of competition – depending on whether firms are considered at perfectly competitive equilibrium, at an imperfectly competitive equilibrium, or in disequilibrium (the general case) where profits can be secured by firms that are alive to strategic opportunities and make the effort – in terms of assembling resources, activities and routines – to take advantage of them.
Original languageEnglish
Title of host publicationPapers from the 2nd annual Copenhagen conference on strategic management
Place of PublicationCopenhagen, Denmark
PublisherCopenhagen Business School
Number of pages38
Publication statusPublished - 2006
EventAnnual Copenhagen Conference on Strategic Management (2nd : 2006) - Copenhagen, Denmark
Duration: 12 Dec 200613 Dec 2006

Conference

ConferenceAnnual Copenhagen Conference on Strategic Management (2nd : 2006)
CityCopenhagen, Denmark
Period12/12/0613/12/06

Keywords

  • economic rents
  • organizational rents
  • Frank Knight
  • pure profits
  • Ricardian rent

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