This article suggests that dynamic capabilities can give the firm competitive advantage, but this effect is contingent on the level of dynamism of the firm's external environment. A nonlinear, inverse U ‐shaped moderation is proposed, implying that the relationship between dynamic capabilities and competitive advantage is strongest under intermediate levels of dynamism but comparatively weaker when dynamism is low or high. This proposition is tested using data on alliance management capability and new product development capability, two specific dynamic capabilities widely recognized in prior research. Results based on longitudinal key informant data from 279 firms support the account that these dynamic capabilities are more strongly associated with competitive advantage in moderately dynamic than in stable or highly dynamic environments . Copyright © 2013 John Wiley & Sons, Ltd.
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