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Do small firms compete with large firms?

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  • David Audretsch
  • Yvonne Prince
  • A. Thurik

Abstract

Despite the pervasive phenomenon of scale economies the majority of firms hasalways been small firms. The emergence of small firms as a means of economic development on both sides of the Atlantic has been one of the major new topics of economic policy since the 1980s. This has drawn renewed attention to the question of how small firms are able to exist. The theories of strategic niches and dynamic complementarity imply that small firms seek out markets where they are able to avoid competition with their larger counterparts. Inthis paper we test the validity of these theories by examining the extent to which small-firm profitability is set by large-firm profitability. We find considerable evidence that the price-cost margins of small firms do not tend to follow those of large firms. This is interpreted as supporting the theories that small firms pursue a strategy of producing in distinct productniches.

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Bibliographic Info

Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 27 (1999)
Issue (Month): 2 (June)
Pages: 201-209

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Handle: RePEc:kap:atlecj:v:27:y:1999:i:2:p:201-209

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References

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  1. Gallant, A. Ronald & Jorgenson, Dale W., 1979. "Statistical inference for a system of simultaneous, non-linear, implicit equations in the context of instrumental variable estimation," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 275-302.
  2. Prince, Yvonne & Thurik, Roy, 1993. " Firm-Size Distribution and Price-Cost Margins in Dutch Manufacturing," Small Business Economics, Springer, vol. 5(3), pages 173-86, September.
  3. Porter, Michael E, 1979. "The Structure within Industries and Companies' Performance," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 214-27, May.
  4. Newman, Howard H, 1978. "Strategic Groups and the Structure-Performance Relationship," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 417-27, August.
  5. Caves, R E & Porter, M E, 1977. "From Entry Barriers to Mobility Barriers: Conjectural Decisions and Contrived Deterrence to New Competition," The Quarterly Journal of Economics, MIT Press, vol. 91(2), pages 241-61, May.
  6. Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, December.
  7. Prince, Y. & Thurik, R., 1993. "The Intertemporal Stability of the Concentration-Margings Relationship in Dutch and U.S. Manufacturing," Papers 9301-e, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM.
  8. Pugel, Thomas A, 1980. "Foreign Trade and US Market Performance," Journal of Industrial Economics, Wiley Blackwell, vol. 29(2), pages 119-29, December.
  9. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
  10. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, December.
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Cited by:
  1. Rawwas, Mohammed Y.A. & Iyer, Karthik N.S., 2013. "How do small firms possibly survive? A comparison study of marketing skills and logistics infrastructure of small and large wholesalers," International Business Review, Elsevier, vol. 22(4), pages 687-698.
  2. Daunfeldt, Sven-Olov & Lang, Åsa & Macuchova, Zuzana & Rudholm, Niklas, 2011. "Firm Growth in the Retail and Wholesale Trade Sectors – Evidence from Sweden," HUI Working Papers 50, HUI Research.
  3. Werner Hölzl, 2002. "Exit, Entry and industry turbulence in Austrian Manufacturing, 1981-1994," Working Papers geewp21, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  4. repec:spo:wpecon:info:hdl:2441/7186 is not listed on IDEAS
  5. Sanidas, E., 2000. "On the Organisation of SMEs and Economic Growth in the USA and Japan," Economics Working Papers wp00-05, School of Economics, University of Wollongong, NSW, Australia.

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