Organizational experience and cost-cutting agreements in the Formula One industry: a dynamic capabilities approach

Research Questions:The Dynamic Capabilities theory posits organizational experience as a key source of sustained competitive advantage. However, empirical evidence remains limited in predictable environments, particularly when distinguishing between continuous and discontinuous changes. This study is the first to address this gap by examining the Formula 1 industry under resource constraints.Research Methods:We used a dataset of 4,479 observations, including economic and performance data from the 2009-2019 Formula 1 seasons. Through a multilevel model, we estimated the output elasticities of driver, car, and team experience, and evaluated their relationship with the Resource Restriction Agreement (RRA), implemented between 2010 and 2013.Results and Findings:We found that team experience contributed 18% to sporting success, but turned negative during the RRA, indicating it functions as a dynamic capability under continuous, predictable changes, but is less effective with discontinuous changes. Despite the RRA disadvantaged older teams, the Gini coefficient remained stable, likely due to the uneven distribution of driver talent across teams.Implications:Cost reduction agreements can promote competitive balance but require complementary strategies. Recommendations include ensuring team survival, prioritizing team acquisition over creating new ones, addressing driver skill disparities, and designing flexible and enforceable cost-cutting agreements.