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Environment, Market Share, and Market Power

Author

Listed:
  • William Boulding

    (Fuqua School of Business, Duke University, Durham, North Carolina 27706)

  • Richard Staelin

    (Fuqua School of Business, Duke University, Durham, North Carolina 27706)

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."

Suggested Citation

  • William Boulding & Richard Staelin, 1990. "Environment, Market Share, and Market Power," Management Science, INFORMS, vol. 36(10), pages 1160-1177, October.
    • Handle: RePEc:inm:ormnsc:v:36:y:1990:i:10:p:1160-1177
    DOI: 10.1287/mnsc.36.10.1160
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    Citations

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    Cited by:

    1. Lu, Zhi & Bolton, Lisa E. & Ng, Sharon & Chen, Haipeng (Allan), 2020. "The Price of Power: How Firm’s Market Power Affects Perceived Fairness of Price Increases," Journal of Retailing, Elsevier, vol. 96(2), pages 220-234.
    2. M. Tolga Akçura & Ram Bezawada & Ajay Kalra, 2012. "The Strategic Role of Private Labels on Retail Competition," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 26(1), pages 1-25.
    3. Walter Beckert, 2018. "An Empirical Analysis of Countervailing Power in Business-to-Business Bargaining," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(3), pages 369-402, May.
    4. Wang, Wei & Zhang, Yue-Jun, 2022. "Does China's carbon emissions trading scheme affect the market power of high-carbon enterprises?," Energy Economics, Elsevier, vol. 108(C).
    5. Serin Choi & Kyuwan Choi & Seoki Lee & Kyuseok Lee, 2017. "A financial approach-based measurement of brand equity in the restaurant industry," Tourism Economics, , vol. 23(7), pages 1515-1522, November.
    6. Clement, Michel & Litfin, Thorsten & Vanini, Sven, 1997. "Ist die Pionierrolle ein Erfolgsfaktor? Eine kritische Analyse der empirischen Forschungsergebnisse," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 446, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    7. Buzzell, Robert D., 2004. "The PIMS program of strategy research: A retrospective appraisal," Journal of Business Research, Elsevier, vol. 57(5), pages 478-483, May.
    8. Lilien, Gary L., 2016. "The B2B Knowledge Gap," International Journal of Research in Marketing, Elsevier, vol. 33(3), pages 543-556.
    9. Walter Beckert, 2009. "Empirical analysis of buyer power," CeMMAP working papers CWP17/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    10. Jason R. Blevins & Ahmed Khwaja & Nathan Yang, 2018. "Firm Expansion, Size Spillovers, and Market Dominance in Retail Chain Dynamics," Management Science, INFORMS, vol. 64(9), pages 4070-4093.
    11. Parisa Pourkarimi & Eric Kam, 2022. "The Impact of R&D and Advertising on Firm Performance in High-Tech Industries—Evidence from the U.S. Information and Communications Technology Industry," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(3), pages 723-753, September.
    12. Gary L. Lilien & John H. Roberts & Venkatesh Shankar, 2013. "Effective Marketing Science Applications: Insights from the ISMS-MSI Practice Prize Finalist Papers and Projects," Marketing Science, INFORMS, vol. 32(2), pages 229-245, March.
    13. Annacker, Dirk & Hildebrandt, Lutz, 2004. "Unobservable effects in structural models of business performance," Journal of Business Research, Elsevier, vol. 57(5), pages 507-517, May.
    14. Joshua T Beck & Ryan Rahinel & Alexander Bleier & Simona Botti & Darren W Dahl & J Jeffrey Inman, 2020. "Company Worth Keeping: Personal Control and Preferences for Brand Leaders [Measuring Brand Equity across Products and Markets]," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 46(5), pages 871-886.
    15. Snyder, Christopher M., 1998. "Why do larger buyers pay lower prices? Intense supplier competition," Economics Letters, Elsevier, vol. 58(2), pages 205-209, February.

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