Article1986

What is an Attractive Industry?

Birger Wernerfelt · Cynthia A. Montgomery

112 citations0/0 files storedManagement Science

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Business Strategies and Innovation Corporate Finance and Governance Firm Innovation and Growth

Abstract

Business Portfolio Planning techniques often suggest that firms should invest in industries with high profitability, high growth, or other attractive characteristics. Critiquing this view, we suggest that the same factors which lead to high profitability in an industry may cause its inefficient participants to earn lower profits. Higher growth, on the other hand, may benefit inefficient firms while reducing the gains of efficient competitors. The paper offers theory and evidence to support this view of performance dependencies for the special case of diversified firms.

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References

1937The Nature of the Firm 1983An Evolutionary Theory of Economic Change.1979Transaction-Cost Economics: The Governance of Contractual Relations 1987The Concept of Corporate Strategy 1982Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency under Competition 1978Strategy formulation : analytical concepts 1973Industry Structure, Market Rivalry, and Public Policy 1982Towards an economic theory of the multiproduct firm

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