Profitability Differences: Persistency and Determinants as Revealed in a Dynamic Panel Approach

In a panel approach we have investigated the differences in profitability of industries. The economic hypotheses used for the explanation are that concentration and/or market shares are positively related to profitability, and the supergame implications that growth and stability of demand facilitate collusion. We have added structural controls for capital intensity and openness of markets and estimate fixed, as well as, random effects in three static and three dynamic panel models. The results show a pronounced persistence of profit differences, where some part of these differences can be explained by the economic hypotheses supplied by the theory