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Testing for Persistence of Profits' Differences Across Firms


  • John Cable
  • Dennis Mueller


We review the logic and implications underlying both static and dynamic models of competition, and associated tests of competitive effectiveness. Complications arising due to innovation, mergers and cyclical factors are discussed. Points raised in the theoretical discussion are illustrated with case histories and estimates for a number of US and UK companies. The empirical analysis tests a larger set of models than has been used in most previous work, and uses longer time series of company profits. We conclude that the patterns of profits observed in both countries are consistent with a larger and more complicated set of models of the competitive process than has been assumed until now, and that further work remains to be done in clarifying both why some firms are persistently profitable, and the nature of the 'shocks' that appear to produce structural breaks in the time series of companies' profits.

Suggested Citation

  • John Cable & Dennis Mueller, 2008. "Testing for Persistence of Profits' Differences Across Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 15(2), pages 201-228.
  • Handle: RePEc:taf:ijecbs:v:15:y:2008:i:2:p:201-228 DOI: 10.1080/13571510802134353

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    References listed on IDEAS

    1. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    2. Joachim Wagner, 2010. "Entry, Exit and Productivity: Empirical Results for German Manufacturing Industries," German Economic Review, Verein für Socialpolitik, vol. 11, pages 78-85, February.
    3. Joachim Wagner, 2007. "Exports and Productivity: A Survey of the Evidence from Firm-level Data," The World Economy, Wiley Blackwell, vol. 30(1), pages 60-82, January.
    4. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    5. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    6. Aw, Bee Yan & Chung, Sukkyun & Roberts, Mark J, 2000. "Productivity and Turnover in the Export Market: Micro-level Evidence from the Republic of Korea and Taiwan (China)," World Bank Economic Review, World Bank Group, vol. 14(1), pages 65-90, January.
    7. Fariñas, Jose C. & Ruano, Sonia, 2005. "Firm productivity, heterogeneity, sunk costs and market selection," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 505-534, September.
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    Cited by:

    1. Philipp Mundt & Simone Alfarano & Mishael Milakovic, 2016. "Gibrat’s Law Redux: think profitability instead of growth," Industrial and Corporate Change, Oxford University Press, vol. 25(4), pages 549-571.
    2. Alfarano, Simone & Milaković, Mishael & Irle, Albrecht & Kauschke, Jonas, 2012. "A statistical equilibrium model of competitive firms," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 136-149.
    3. Dominic Chai & Simon Deakin & Prabirjit Sarkar & Ajit Singh, 2014. "Corporate Governance, Legal Origin & the Persistence of Profits," Working Papers wp465, Centre for Business Research, University of Cambridge.
    4. Stefan Hirsch & Monika Hartmann, 2014. "Persistence of firm-level profitability in the European dairy processing industry," Agricultural Economics, International Association of Agricultural Economists, vol. 45(S1), pages 53-63, November.
    5. repec:eee:trapol:v:58:y:2017:i:c:p:53-61 is not listed on IDEAS
    6. Mahmoud M. Nourayi & Julie W. Suh, 2015. "An Empirical Analysis of the Competitiveness in the U.S. Airline Industry," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 83-99, August.
    7. Christa Sys, 2013. "Persistence of profits in the container liner shipping industry," Chapters,in: Smart Transport Networks, chapter 6, pages 99-125 Edward Elgar Publishing.


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