Fortune Favors the Prepared Firm

Journal Article

A critical factor in industrial competitiveness is the ability of firms to exploit new technological developments. We term this ability a firm's absorptive capacity and argue that such a capability not only enables a firm to exploit new extramural knowledge, but to predict more accurately the nature of future technological advances. We develop a stylized model in which we focus exclusively on firms' decisions to invest in their absorptive capacities. We first examine a monopolist's investment decision, analyzing the path dependence of its investment and the effect of uncertainty. We then consider the effect of competition by modeling the impact of entry on an incumbent's investment behavior. Implications for management and public policy are then discussed.

Full Text

Duke Authors

Cited Authors

  • Cohen, WM; Levinthal, DA

Published Date

  • February 1994

Published In

Volume / Issue

  • 40 / 2

Start / End Page

  • 227 - 251

Published By

Electronic International Standard Serial Number (EISSN)

  • 1526-5501

International Standard Serial Number (ISSN)

  • 0025-1909

Digital Object Identifier (DOI)

  • 10.1287/mnsc.40.2.227


  • en