Competition and the Origins of Inequality

Daniel Raff

This paper is intended in part as a contribution to the current discussion of how business history and business historians can contribute to business school teaching and research.  In most industries, some firms are very much more profitable than others.  Most established firms finance investment through retained earnings rather than through securities issues, thus providing a natural impulse to persistence in the pattern.  The origins of the inequality in outcomes are thus of great interest to those who want to study firm development over time and industry evolution, business historians among them.   In this short paper I make three arguments.  The first is that economic models can in principle be helpful, rather than an irrelevance, to historians studying such matters.  The second is that historians who want to see what the help might be need to consult the right sort of models.  The third is that a relatively recent (and in business schools highly topical) body of theorizing, the cooperative game theoretic approach to competition and firm-level strategy, represents an example of the right sort.  An application will be sketched if time permits.