Entry and Schumpeterian Profits: How Technological Complexity Affects Industry Evolution
42 Pages Posted: 18 Jul 2009 Last revised: 5 May 2013
Date Written: July 18, 2009
A large empirical literature has documented differences in Schumpeterian profits, both among firms in single industries and between firms in different industries. Theorists have proposed various institutional and strategic factors to account for such differences but have had relatively little to say about the manner in which technology affects entry and profits. In this paper I present a model in which persistent intraindustry differences in firm profitability arise as the outcomes of learning and imitation, and interindustry differences in the persistence of above normal profits arise solely from production being more technologically complex in some industries than in others.
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