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What is an Attractive Industry?

Listed author(s):
  • Birger Wernerfelt

    (J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60201)

  • Cynthia A. Montgomery

    (J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60201)

Business Portfolio Planning techniques often suggest that firms should invest in industries with high profitability, high growth, or other attractive characteristics. Critiquing this view, we suggest that the same factors which lead to high profitability in an industry may cause its inefficient participants to earn lower profits. Higher growth, on the other hand, may benefit inefficient firms while reducing the gains of efficient competitors. The paper offers theory and evidence to support this view of performance dependencies for the special case of diversified firms.

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File URL: http://dx.doi.org/10.1287/mnsc.32.10.1223
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 32 (1986)
Issue (Month): 10 (October)
Pages: 1223-1230

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Handle: RePEc:inm:ormnsc:v:32:y:1986:i:10:p:1223-1230
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