MAN Vol 37. No SOURCES OF SUPERIOR PERFORMANCE: MARKET SHARE VERSUS INDUSTRY EFFECTS IN THE U.S. BREWING INDUSTRY CYNTHIA A MONTGOMERY AND BIRGER WERNERFELT Harvard Business School, Boston. Massachusetts 02163 Sloan School of Management, Massachusetts Institute of Technology Using financial measures of performance we investigate the sources of value creation in the U.S. brewing industry between 1969 and 1979. We find that market share gains in this industr at this time are not correlated with changes in value and that the performance of individual leading firms is highly correlated. Our interpretation is that the success of building strategies depends critically on specific industry conditions. Specifically, damental shifts in the relative resource positions of individual firms, sha too high a price. In addition, the research shows that intra-industry correlations in returns may result from excessive competition rather than collusion ( FIRM RESOURCES; PERFORMANCE; MARKET SHARE The folklore of management is replete with anecdotes about specific firms which are onsidered"winners "and"losers "in their industries. a particularly rich source of such anecdotes has been the U. S brewing industry in the 1970s. It is repeatedly alleged that ring that period miller Brewing and Anheuser-Busch were industry"winners, " that Schlitz Brewing was a"loser, that"winners "won because they gained market share and that other firms lost because the"winners"won. These views contain judgments about(a)the relative performance of firms in the industry, (b)the association between market share gains and firm performance and (c) the view that performance within the industry was a zero-sum game 3 In this paper we subject these anecdotes to empirical tests. In g2 we briefly review the theoretical arguments. In $3 we describe the study. ve present the results 2. Theory a. Market Share and performance Many believe that there is a causal relationship between market share and performance The supporting evidence has typically consisted of cross-sectional correlations between market share and accounting measures of return Buzzell, Gale and Sultan 1975; Prescot Kohli, and Venkatraman 1986). However, several authors Schendel and Patton 1978 Rumelt and Wensley 1981; Spence 1981) have suggested that if market share is an asset to zero. while this is a compelling argument, it has not been subjected to very convincing nen competition for it should be just fierce enough to reduce the net long -term retur empirical tests. In particular, the published results(rumelt and Wensley 1981; Jacobson 1988)rely on accounting measures of performance. Apart from the usual critique of accounting measures( Benston 1985 )in the present context they are especially inappro priate because the net returns from gaining market share may be realized over very long time periods. Capital market measures, which capture the expected net present value of market shares, are clearly superior for this purpose Accepted by Vijay Mahajan; received December 6, 1989. This paper has been with the author 5 months 0025-1909/91/3708/0954s0125