Abstract
In this paper we develop a process model relating market share to firm profits. In particular, we specify average price and average cost equations as a function of previous year market share position, changes in market share, environmental conditions, and interactions of environmental conditions with the lagged market position and market share change variables. We estimate these equations using PIMS data after controlling for unobservable factors. Our results suggest that firms with high market shares derive no extra market power benefits except if they operate in environments with little buyer power. Instead, environmental factors and changes in market share most strongly influence price and cost. An analysis of the market share associated with maximal firm profits indicates that for the majority of firms in our sample steadily increasing market share does not always associate with increasing profits, giving credence to the proposition that “more market share is not always better.”
Keywords
Market share analysisMarket shareMarket powerUnobservableMarket saturationFactor marketMarket microstructurePosition (finance)Market concentrationEconomicsMarket priceMarket rateBusinessMicroeconomicsShare priceMarket analysisIndustrial organizationMarket structureOrder (exchange)EconometricsMarketingFinanceMonopoly
Affiliated Institutions
Related Publications
Raising Rivals’ Costs
Abstract RRC analysis principally focuses on a market with a dominant firm that is assumed to have significant market power, independent of any cost-raising strategies. The fund...
The Rise of Market Power and the Macroeconomic Implications*
Abstract We document the evolution of market power based on firm-level data for the U.S. economy since 1955. We measure both markups and profitability. In 1980, aggregate markup...
When Does Market Share Matter? New Empirical Generalizations from a Meta-Analysis of the Market Share–Performance Relationship
The impact of market share on financial firm performance is one of the most widely studied relationships in marketing strategy research. However, since the meta-analysis by Szym...
Investment and Wages in the Absence of Binding Contracts: A Nash Bargaining Approach
The paper uses a generalized Nash bargain to analyze input levels, profits, and wages in the absence of binding contracts, and compares these with the convenitional binding cont...
Defensive Marketing Strategies
This paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product. Our ...
Publication Info
- Year
- 1990
- Type
- article
- Volume
- 36
- Issue
- 10
- Pages
- 1160-1177
- Citations
- 141
- Access
- Closed
External Links
Social Impact
Altmetric
PlumX Metrics
Social media, news, blog, policy document mentions
Citation Metrics
141
OpenAlex
Cite This
William Boulding,
Richard Staelin
(1990).
Environment, Market Share, and Market Power.
Management Science
, 36
(10)
, 1160-1177.
https://doi.org/10.1287/mnsc.36.10.1160
Identifiers
- DOI
- 10.1287/mnsc.36.10.1160