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Do Small Firms compete with Large Firms?

Author

Listed:
  • 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)

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.

Suggested Citation

  • D.B. Audretsch & Y.M. Prince & A.R. Thurik, 1998. "Do Small Firms compete with Large Firms?," Tinbergen Institute Discussion Papers 98-013/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:19980013
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    References listed on IDEAS

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    Cited by:

    1. Akbar Ullah & Ejaz Ghani & Attiya Y. Javed, 2013. "Market Power and Industrial Performance in Pakistan," PIDE-Working Papers 2013:88, Pakistan Institute of Development Economics.
    2. 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.
    3. Ciliberto, Federico & Jäkel, Ina C., 2021. "Superstar exporters: An empirical investigation of strategic interactions in Danish export markets," Journal of International Economics, Elsevier, vol. 129(C).
    4. Theodore Papadogonas & Vassilis Droucopoulos, 2004. "Do Small Firms Breathe Heavily Down The Necks of Their Larger Brethren?," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 2(1), pages 59-65.
    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.
    6. Flora Bellone & Patrick Musso & Lionel Nesta & Michel Quere, 2010. "Market Selection Along the Firm Life Cycle," Chapters, in: Jean-Luc Gaffard & Evens Salies (ed.), Innovation, Economic Growth and the Firm, chapter 5, Edward Elgar Publishing.
    7. repec:spo:wpecon:info:hdl:2441/7186 is not listed on IDEAS
    8. Ivan Litvaj & Mário Drbúl & Miloslav Bůžek, 2023. "Sustainability in Small and Medium Enterprises, Sustainable Development in the Slovak Republic, and Sustainability and Quality Management in Small and Medium Enterprises," Sustainability, MDPI, vol. 15(3), pages 1-30, January.
    9. Werner Hölzl, 2002. "Exit, Entry and industry turbulence in Austrian Manufacturing, 1981-1994," Working Papers geewp21, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    10. Flora Bellone & Patrick Musso & Michel Quéré & Lionel Nesta, 2006. "Productivity and Market Selection of French Manufacturing Firms in the Nineties," Revue de l'OFCE, Presses de Sciences-Po, vol. 97(5), pages 319-349.
    11. Italo Colantone & Kristien Coucke & Leo Sleuwaegen, 2015. "Low-cost import competition and firm exit: evidence from the EU," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 24(1), pages 131-161.
    12. Odlin, Denis, 2019. "Domestic competitor influence on internationalizing SMEs as an industry evolves," Journal of World Business, Elsevier, vol. 54(2), pages 119-136.
    13. repec:hal:spmain:info:hdl:2441/7185 is not listed on IDEAS
    14. Ong, Xander & Freeman, Susan & Goxe, François & Guercini, Simone & Cooper, Brian, 2022. "Outsidership, network positions and cooperation among internationalizing SMEs: An industry evolutionary perspective," International Business Review, Elsevier, vol. 31(3).
    15. Aneta Ejsmont & Magdalena Majchrzak & Jacek Grzywacz, 2021. "Competitive Advantage in Co-operation of Enterprises Using Kaizen Costing Concept in Times of Extraordinary Dangers," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 4), pages 377-396.
    16. 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.
    17. repec:hal:spmain:info:hdl:2441/7186 is not listed on IDEAS
    18. repec:hal:wpspec:info:hdl:2441/7186 is not listed on IDEAS

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    JEL classification:

    • L0 - Industrial Organization - - General
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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