Introduction

While both Marx and Marshall recognized the diversity of production techniques that were likely to be employed at any given time, recent studies of industry performance generally fail to recognize the diversity of firms within an industry. For example, productivity growth is generally measured at the industry level with almost complete disregard for the underlying production entities, probably because of the widely accepted concept of a representative or average firm. As Reid (1987) points out, in industrial organization the Vinerian concept of the representative firm has been dominant at the expense of the more complex notion of the diversity of firm performance stressed by Marshall. As a result, the mainstream of industrial organization has had trouble in coming to grips with the reality of heterogeneity of firm performance within industries.

One of the few areas of applied industrial economics that acknowledges firm heterogeneity is the literature on X-inefficiency.