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The market share‐profitability relationship: An empirical assessment of major assertions and contradictions


  • John E. Prescott
  • Ajay K. Kohli
  • N. Venkatraman


While previous research on the relationship between market share (MS) and business profitability (BP) has found a positive relationship, its nature (i.e. direct versus spurious), its context‐specificity, and the validity of MS as a predictor of BP have not been adequately addressed. Employing path analysis, this study examined the nature of this relationship across a taxonomy of homogeneous environments. The major findings were that (1) the association between MS and BP is context‐specific; (2) both direct and spurious relationships exist, and their relative strengths vary across environments; and (3) the validity of MS as a predictor of BP is context‐specific. Further, key firm conduct variables accounting for the spuriousness have been identified. Finally, implications of these findings for managers pursuing market share as a goal are discussed.

Suggested Citation

  • John E. Prescott & Ajay K. Kohli & N. Venkatraman, 1986. "The market share‐profitability relationship: An empirical assessment of major assertions and contradictions," Strategic Management Journal, Wiley Blackwell, vol. 7(4), pages 377-394, July.
  • Handle: RePEc:bla:stratm:v:7:y:1986:i:4:p:377-394
    DOI: 10.1002/smj.4250070407

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    2. J. Regino Maldonado & Yali Wen & Carpenter Christopher, 2015. "The Role of Forest Resources in the Performance of Community Forest Enterprise in Mexico: Analytical Framework from Competitive Strategy," International Journal of Sciences, Office ijSciences, vol. 4(05), pages 14-24, May.
    3. Juan Regino Maldonado & Wen Yali & Frederick Cubbage & Patricia Regino Maldonado, 2017. "Forest Resources in the Performance of Mexican Community Forest Enterprises in a Vertical Integration System," International Journal of Sciences, Office ijSciences, vol. 6(09), pages 1-15, September.
    4. Paul E. Bierly III & Paula S. Daly, 2007. "Alternative Knowledge Strategies, Competitive Environment, and Organizational Performance in Small Manufacturing Firms," Entrepreneurship Theory and Practice, , vol. 31(4), pages 493-516, July.
    5. Silvia Angilella & Maria Rosaria Pappalardo, 0. "Performance assessment of energy companies employing Hierarchy Stochastic Multi-Attribute Acceptability Analysis," Operational Research, Springer, vol. 0, pages 1-72.

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