Random Walks and Sustained Competitive Advantage
Strategy is concerned with sustained interfirm profitability differences. Observations of such sustained differences are often attributed to unobserved systematic a priori differences in firm characteristics. This paper shows that sustained interfirm profitability differences may be very likely even...
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| Format: | Journal article |
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2004
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| _version_ | 1797105113617137664 |
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| author | Denrell, J |
| author_facet | Denrell, J |
| author_sort | Denrell, J |
| collection | OXFORD |
| description | Strategy is concerned with sustained interfirm profitability differences. Observations of such sustained differences are often attributed to unobserved systematic a priori differences in firm characteristics. This paper shows that sustained interfirm profitability differences may be very likely even if there are no a priori differences among firms. As a result of the phenomenon of long leads in random walks, even a random resource accumulation process is likely to produce persistent resource heterogeneity and sustained interfirm profitability differences. A Cournot model in which costs follow a random walk shows that such a process could produce evidence of substantial persistence of profitability. The results suggest that persistent profitability does not necessarily provide strong evidence for systematic a priori differences among firms. Nevertheless, since the phenomenon of long leads is highly unrepresentative of intuitive notions of random sequences, such evidence may still be persuasive. |
| first_indexed | 2024-03-07T06:42:54Z |
| format | Journal article |
| id | oxford-uuid:f9e3f879-f6a4-4f56-9ef8-b3b73c90a073 |
| institution | University of Oxford |
| last_indexed | 2024-03-07T06:42:54Z |
| publishDate | 2004 |
| record_format | dspace |
| spelling | oxford-uuid:f9e3f879-f6a4-4f56-9ef8-b3b73c90a0732022-03-27T13:01:30ZRandom Walks and Sustained Competitive AdvantageJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:f9e3f879-f6a4-4f56-9ef8-b3b73c90a073Saïd Business School - Eureka2004Denrell, JStrategy is concerned with sustained interfirm profitability differences. Observations of such sustained differences are often attributed to unobserved systematic a priori differences in firm characteristics. This paper shows that sustained interfirm profitability differences may be very likely even if there are no a priori differences among firms. As a result of the phenomenon of long leads in random walks, even a random resource accumulation process is likely to produce persistent resource heterogeneity and sustained interfirm profitability differences. A Cournot model in which costs follow a random walk shows that such a process could produce evidence of substantial persistence of profitability. The results suggest that persistent profitability does not necessarily provide strong evidence for systematic a priori differences among firms. Nevertheless, since the phenomenon of long leads is highly unrepresentative of intuitive notions of random sequences, such evidence may still be persuasive. |
| spellingShingle | Denrell, J Random Walks and Sustained Competitive Advantage |
| title | Random Walks and Sustained Competitive Advantage |
| title_full | Random Walks and Sustained Competitive Advantage |
| title_fullStr | Random Walks and Sustained Competitive Advantage |
| title_full_unstemmed | Random Walks and Sustained Competitive Advantage |
| title_short | Random Walks and Sustained Competitive Advantage |
| title_sort | random walks and sustained competitive advantage |
| work_keys_str_mv | AT denrellj randomwalksandsustainedcompetitiveadvantage |