Firm profitability and relative firm power

Abstract

This paper expands the notion of extended rivalry as cross-industry relations within the chain of production and distribution, and argues that firm power resides in the exclusivity and essentiality of the firm's function in the chain. A cross-section of U.S. manufacturing firms representing components for finished goods, capital goods, and supplies or consumable products is examined. The analysis of the three industry groups by simultaneous equation estimation provides general support for the hypothesis that firm power, as expressed in inter-industry transactions, and industry structure, is associated with firm profitability.