Heterogeneity Hypothesis of Firms: An Evolutionary Economic Explanation of the Nature and Behavior of Firms

Author: Liu Gang
Publisher:
Publish Date: 2005-10-01
Features: In real economic activities, the essence of corporate competitive behavior or competitive strategy is the pursuit of differentiation. The diversity and innovation of corporate competitive behavior are the sources of real economic growth and continuous transformation. Faced with such a significant practical issue, mainstream economic theory lacks explanatory power. The key issue is to explain price theory, where neoclassical economics assumes firms to be completely homogeneous optimizing producers. However, as organic entities of historical development, real-world firms are different, heterogeneous, and specific. Under the assumption of bounded rationality, both the response of firms to external environmental changes and their own behavioral patterns exhibit significant differences, which ultimately determine the distinct survival and development spaces and competitive advantages among firms. Under the assumption of corporate heterogeneity, corporate competitive behavior or competitive advantages are endogenous. The accumulation of knowledge and capabilities in innovative competition is the fundamental source of firms' sustainable competitive advantages.