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 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.

• 저널Management Science · 50(7) · 922–934
• 토픽Firm Innovation and Growth · Economics and Econometrics
• DOI10.1287/mnsc.1030.0143
• 저자Jerker Denrell