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Profitability and market share: A reflection on the functional relationship

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  • Joachim Schwalbach

Abstract

The paper analyzes the functional relationship between profitability and market share for type of businesses in the PIMS data base. Although a linear relationship has been imposed in other studies, our result shows that empirically it seems a poor representation of the data. In addition, three observations seem to be most evident. First, small‐share businesses were not per se less successful than larger business units. In the service market and the market for raw or semi‐finished materials small‐share businesses were just as profitable or even more profitable than larger business units. Second, some businesses were ‘stuck in the middle’, which was most evident in the service market but also in the retail and wholesale markets. Third, very large‐share businesses were often less profitable. A critical market share was identified as between 65 and 70 percent. Beyond that level the ROI decreased.

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  • Joachim Schwalbach, 1991. "Profitability and market share: A reflection on the functional relationship," Strategic Management Journal, Wiley Blackwell, vol. 12(4), pages 299-306, May.
    • Handle: RePEc:bla:stratm:v:12:y:1991:i:4:p:299-306
    DOI: 10.1002/smj.4250120405
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    Cited by:

    1. Majumdar, Sumit K., 2004. "The hidden hand and the license raj to An evaluation of the relationship between age and the growth of firms in India," Journal of Business Venturing, Elsevier, vol. 19(1), pages 107-125, January.
    2. Wenyi Chu & Chien-Nan Chen & Chuang-Hung Wang, 2008. "The market share--profitability relationships in the securities industry," The Service Industries Journal, Taylor & Francis Journals, vol. 28(6), pages 813-826, July.
    3. Almas Heshmati & Rachid El-Rhinaoui, 2009. "Effects of Ownership and Market Share on Performance of Mobile Operators in MENA Region," TEMEP Discussion Papers 200921, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Nov 2009.

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