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Do Small Firms compete with Large Firms?

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Author Info
D.B. Audretsch () (Georgia State University, CEPR)
Y.M. Prince (EIM Small Business Research and Consultancy)
A.R. Thurik () (Erasmus University and EIM Small Business Research and Consultancy)

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Abstract

Despite the pervasive phenomenon of scale economies the majority of firms has always 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. In this 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 product niches.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 98-013/3.

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Date of creation: 09 Feb 1998
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Handle: RePEc:dgr:uvatin:19980013

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Find related papers by JEL classification:
L0 - Industrial Organization - - General
L6 - Industrial Organization - - Industry Studies: Manufacturing

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Pugel, Thomas A, 1980. "Foreign Trade and US Market Performance," Journal of Industrial Economics, Blackwell Publishing, vol. 29(2), pages 119-29, December. [Downloadable!] (restricted)
  4. Nooteboom, Bart, 1994. " Innovation and Diffusion in Small Firms: Theory and Evidence," Small Business Economics, Springer, vol. 6(5), pages 327-47, October.
  5. 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.
  6. 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. [Downloadable!] (restricted)
  7. 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.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Werner Hölzl, 2002. "Exit, Entry and industry turbulence in Austrian Manufacturing, 1981-1994," Working Papers geewp21, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness. [Downloadable!]
  2. 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. [Downloadable!]
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