Monopoly Profits, Efficiency Profits, and Teaching Strategic Management

Structure-conduct-performance (SCP) and resource-based logics are two prominent theoretical explanations within strategic management for how firms gain and sustain competitive advantages. Pedagogically, these two theories are often incorporated into a grand integrated framework that describes the strategic management process. However, in terms of their respective profit-generating mechanisms, these theories are largely contradictory, and integrating them into a single framework for teaching strategy is problematic. Firms that try to apply both approaches to profit generation at the same time within the same business are likely to be unsuccessful. We identify these contradictions in the profit-generating process between these two theories and specify the pedagogical implications of these contradictions. We then argue that strategic management pedagogy should consider acknowledging these fundamentally different models of profit generation and help students understand when one approach or the other applies.