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Beyond the Reach of the Invisible Hand: Impediments to Economic Activity, Market Failures, and Profitability

Dennis A. Yao
Strategic Management Journal
Vol. 9, Special Issue: Strategy Content Research (Summer, 1988), pp. 59-70
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2486212
Page Count: 12
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Beyond the Reach of the Invisible Hand: Impediments to Economic Activity, Market Failures, and Profitability
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Abstract

In this paper it is argued that failures of the competitive market are necessary conditions for supranormal profitability. Three fundamental causes of these market failures-production economies and sunk costs, transactions costs, and imperfect information-are developed from the theory of competitive markets and discussed in terms of their impact on profitability. The identification of these `impediments to economic activity' is useful for determining successful strategies to exploit market failures.

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