The Economist recently estimated the global pool of supernormal profits (profits in excess of an assumed 12 percent hurdle rate) at $660 billion. This is essentially a transatlantic phenomena; an astounding 98 percent of these excess profits accrue to a handful of American and European firms. In the United States, a third is cornered by firms with legal and regulatory moats such as healthcare, military contracting, and other non-tradables. But two-thirds go to firms in industries with no such artificial barriers to entry (tech and other tradables) and that are more or less fully exposed to competitors from across the world. Why aren't these rents bid away by the entry of hungrier rivals?
The Superstar Firm Dilemma
The Superstar Firm Dilemma
The Superstar Firm Dilemma
The Economist recently estimated the global pool of supernormal profits (profits in excess of an assumed 12 percent hurdle rate) at $660 billion. This is essentially a transatlantic phenomena; an astounding 98 percent of these excess profits accrue to a handful of American and European firms. In the United States, a third is cornered by firms with legal and regulatory moats such as healthcare, military contracting, and other non-tradables. But two-thirds go to firms in industries with no such artificial barriers to entry (tech and other tradables) and that are more or less fully exposed to competitors from across the world. Why aren't these rents bid away by the entry of hungrier rivals?