Please use this identifier to cite or link to this item: https://doi.org/10.1093/icc/dtp009
Title: Inter-industry differences in profitability: The legacy of the structure-efficiency debate revisited
Authors: Lee, C.-Y.
Mahmood, I.P. 
Issue Date: 2009
Source: Lee, C.-Y., Mahmood, I.P. (2009). Inter-industry differences in profitability: The legacy of the structure-efficiency debate revisited. Industrial and Corporate Change 18 (3) : 351-380. ScholarBank@NUS Repository. https://doi.org/10.1093/icc/dtp009
Abstract: This study presents a simple model on the sources of inter-industry variation in profitability and tests its empirical implications in order to shed new light on the long-lasting debate over industry profitability. The model identifies four key factors that jointly influence an industry's price - cost margin: (i) the intensity of strategic investment (e.g. R&D and advertising), (ii) the skewness of the distribution of market share or market concentration, (iii) the appropriability of strategic investment, and (iv) the extent to which firms' market shares are determined by the intensity of their strategic investment. These factors are expected to be positively related to industry profitability, and our empirical analysis provides supportive evidence. The model also suggests that the conventional, single-dimensional hypotheses on profitability - the market-power (or market-structure) hypothesis and the efficiency hypothesis - are overly simplified. More importantly, existing empirical results allegedly supporting each of these hypotheses are spurious to the extent that the distribution of firm-specific strategic competence reflects firm heterogeneity in efficiency and, at the same time, underlies the distribution of market share or market concentration. © The Author 2009. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved.
Source Title: Industrial and Corporate Change
URI: http://scholarbank.nus.edu.sg/handle/10635/44331
ISSN: 09606491
DOI: 10.1093/icc/dtp009
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