THE EFFICIENCY OF FIRMS - WHAT DIFFERENCE DOES COMPETITION MAKE

In Cournot oligopoly the efficiency of a firm relative to others deter mines its market share: this relationship gives an incentive to improv e efficiency. The incentives are greater in markets where firm' behavi our is more competitive. Components of firm efficiency are identified by frontier production function techniques in r9 UK manufacturing sect ors: technical change, average efficiency of each firm relative to the frontier, and the efficiency of each firm relative to its own 'best p ractice' in each period. Short run declines in market shares and profi ts induce the firm to improve efficiency relative to its 'best practic e'. Long run differences in efficiency are correlated with differences in gross investment.