Hiroyuki Odagiri and Nobuhiro Maruyama

"Does the persistence of profits persist? a study of company profits in Japan, 1964-97," International Journal of Industrial Organization Volume 20, Issue 10, December 2002, pages 1513-33.

JEL codes: L12, L60, M21
Keywords: profit rate, competition, contestability, market structure

Abstract: Earlier, Odagiri and Yamawaki made a time-series study of the profit rates of Japanese manufacturing firms and concluded that profits persist. With the addition of 15 years more data up to 1997, this conclusion is shown to stand the test of time. In particular, those firms estimated to earn higher-than-average long-run profit rates in the early study were again estimated to earn higher-than-average long-run profit rates. The force of convergence was also found to be at work; for instance, the firms most profitable in Period 1 (1964-82) were most likely to fce a decline in estimated long-run profit rates from Period 1 to Period 2 (1983-97). With the use of two sets of data, the firm's profit performance was found to be positively related to measures of market share. First, among a smaller sample of firms for which reliable market share data could be matched, market share was estimated to have a significant positive effect on long-run profit rate in either period. Secondly, among the entire sample of 357 firms, the long-run profit rate in either period was estimated to be positively associated with firm sales relative to industry sales, which presumably is a crude measure of market share.