Random Walks and Sustained Competitive Advantage

Denrell, Jerker (2004) Random Walks and Sustained Competitive Advantage. In: Winter Strategy Conference, March 2004, Park City, Utah. (Unpublished)

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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.

Item Type: Conference or Workshop Item (Paper)
Keywords: Sustained competitive advantage; Resource-based view; Random walks; Luck
Subject(s): Strategy; Entrepreneurship & Global business
Centre: Faculty of Strategy, Entrepreneurship and International Business
Date Deposited: 05 Mar 2012 21:32
Last Modified: 23 Oct 2015 14:06
URI: http://eureka.sbs.ox.ac.uk/id/eprint/2431

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