The Convergence of Profits in the Long Run: Inter-Firm and Inter-Industry Comparisons

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This paper considers the extent to which the short run dynamic behaviour and long run equilibrium levels of profitability differ amongst firms within the same industry. Movements in profits are modelled in terms of firm specific deviations from average industry profits, and industry specific deviations from economy wide average returns. Applied to a sample of 217 large UK firms, 1951-1977, the results suggest that considerable heterogeneities exist within most industries. That is, most firms' profitability experience differs considerably from those of their closest rivals.