Random Walks and Sustained Competitive Advantage

Jerker Denrell ()
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Jerker Denrell: Graduate School of Business, Stanford University, Stanford, California 94305

Management Science, 2004, vol. 50, issue 7, 922-934

Abstract: 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.

Keywords: sustained competitive advantage; resource-based view; random walks; luck (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:50:y:2004:i:7:p:922-934

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