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Interdependency, competition, and the distribution of firm and industry profits

Publication ,  Journal Article
Lenox, MJ; Rockart, SF; Lewin, AY
Published in: Management Science
May 1, 2006

Coordination of interdependencies among firms' productive activities has been advanced as a promising explanation for sustained heterogeneity in capabilities among firms. In this paper, we extend this line of research to determine the industry structures and patterns of expected firm profits for the case when difficulty optimizing interdependent activities does, in fact, generate and sustain capability heterogeneity among firms. We combine a widely used agent-based model where firms search to discover sets of activities that complement one another (reducing overall costs or raising product quality) with traditional economic models of competition among profit-maximizing firms. The agent-based model produces a distribution of performance (interpreted as variable cost or product quality) among firms and the competition models determine resulting industry outcomes including patterns of entry, exit, and profits. The integration of economic models of competition among firms with an agent-based model of search for improvement by firms reveals a rich relationship between inter-dependencies in production functions and industry structure, firm profits, and industry average profitability. © 2006 INFORMS.

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Published In

Management Science

DOI

EISSN

1526-5501

ISSN

0025-1909

Publication Date

May 1, 2006

Volume

52

Issue

5

Start / End Page

757 / 772

Related Subject Headings

  • Operations Research
  • 46 Information and computing sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 08 Information and Computing Sciences
 

Citation

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Lenox, M. J., Rockart, S. F., & Lewin, A. Y. (2006). Interdependency, competition, and the distribution of firm and industry profits. Management Science, 52(5), 757–772. https://doi.org/10.1287/mnsc.1050.0495
Lenox, M. J., S. F. Rockart, and A. Y. Lewin. “Interdependency, competition, and the distribution of firm and industry profits.” Management Science 52, no. 5 (May 1, 2006): 757–72. https://doi.org/10.1287/mnsc.1050.0495.
Lenox MJ, Rockart SF, Lewin AY. Interdependency, competition, and the distribution of firm and industry profits. Management Science. 2006 May 1;52(5):757–72.
Lenox, M. J., et al. “Interdependency, competition, and the distribution of firm and industry profits.” Management Science, vol. 52, no. 5, May 2006, pp. 757–72. Scopus, doi:10.1287/mnsc.1050.0495.
Lenox MJ, Rockart SF, Lewin AY. Interdependency, competition, and the distribution of firm and industry profits. Management Science. 2006 May 1;52(5):757–772.

Published In

Management Science

DOI

EISSN

1526-5501

ISSN

0025-1909

Publication Date

May 1, 2006

Volume

52

Issue

5

Start / End Page

757 / 772

Related Subject Headings

  • Operations Research
  • 46 Information and computing sciences
  • 38 Economics
  • 35 Commerce, management, tourism and services
  • 15 Commerce, Management, Tourism and Services
  • 08 Information and Computing Sciences