Duration of industry leadership

Abstract

Firms strive to become industry leaders for a number of reasons including the market power that such a position endows upon them, the prestige relating to it as well as the increase in profits that it often results in. In this paper, we concentrate on the duration of survival of leaders and on the factors that influence it. To facilitate our investigation, we use duration analysis to estimate a survival function, both with and without time varying covariates. Our results indicate that, on average, in India, a firm maintains its leadership position for approximately five years (though this is significantly higher in the ‘high concentration ratio industries’). Its survival fits a logistic distribution best, implying that the hazard of failure is nonlinearly related to time. On the one hand, the size of the firm itself, its previous experience in leading the industry and economies of scale in the industry all extend the duration of leadership. On the other hand, the larger the size of the firm's rivals and the larger its profits relative to the industry average, the shorter its duration of survival at the top.