THE JOURNAL OF LAW AND ECONOMICS In such cases, smaller firms will tend to earn relatively high rates of return Which type of new efficiency arises most frequently is a question of fact Such profits need not be eliminated soon by competition. It may well be hat superior competitive performance is unique to the firm, viewed as a team, and unobtainable to others except by purchasing the firm itself. In this case the return to superior performance is in the nature of a gain that is completely captured by the owner of the firm itself, not by its inputs Here, although the industry structure may change because the superior firm grows, the resulting increase in profit cannot easily serve to guide competitors to similar success. The firm may have established a reputation or goodwill that is difficult to separate from the firm itself and which should be carried at higher value on its books. Or it may be that the members of the employee team derive their higher productivity from the knowledge they possess about each other in the environment of the particular firm in which they work, a source of productivity that may be difficult to transfer piecemeal. It should be remembered that we are discussing complex, large enterprises, many larger (and more productive) than entire nations. One such enterprise happens to "click" for some time while others do not. It may be very difficult for these firms to understand the reasons for this difference in performance or to know to which inputs to attribute the performance of the successful firm. It is not easy to ascertain just why G M. and I B M. perform better than their competitors. The complexity of these organizations defies easy analysis, so that the inputs responsible for success may be undervalued by the market for some time By the same token, inputs owned by complex, unsuccessful firms ay be overvalued for some time. The success of firms will be reflected in higher returns and stock prices, not higher input prices, and lack of success will be recorded in lower returns and stock prices, not lower input prices Moreover, inputs are acquired at historic cost, but the use made of these inputs, including the managerial inputs, yields only uncertain outcomes. Be cause the outcomes of managerial decisions are surrounded by uncertainty nd are specific to a particular firm at a particular point in its history, the acquisition cost of inputs may fail to reflect their value to the firm at some subsequent time. By the time their value to the firm is recognized, they are beyond acquisition by other firms at the same historic cost, and, in the interim, shareholders of the successful or lucky firm will have enjoyed higher profit rates. When nature cooperates to make such decisions correct, they can give rise to high accounting returns for several years or to a once and for 1A detailed notion of production that underlies these Iments can be found in Armen A. Alchian Harold Demsetz, Production, Information and Economic Organization, 62 Amer, Econ. Rev. 777(1972)