Journal Article
An important issue in corporate strategy is to explain persistent differences in conduct and performance among close competitors within an industry. While IO economists generally seek technology and market-based explanations, firm theorists and business policy scholars rather look for historical and organisational reasons. The paper first summarises recent findings along these two approaches. It then investigates sources of persistent differences between two firms competing à la Cournot in two identical markets. In this context both types of explanations are found to matter. On one hand the authors show that the firms respective capabilities (i.e. the parameters that determine their cost of producing the two goods) would diverge if and only if some difference in the firms respective initial capabilities exists and there is an arbitrarily small amount of organisational inertia (i.e. an arbitrarily small cost of updating current capabilities). On the other hand the authors find that the amount by which firms capabilities diverge depends on market conditions.
