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Do small firms compete with large firms?

  • David Audretsch
  • Yvonne Prince
  • A. Thurik

Despite the pervasive phenomenon of scale economies, the majority of firms have 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: How are small firms 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. This paper tests the validity of these theories by examining the extent to which small-firm profitability is set by large-firm profitability. Considerable evidence shows that the price-cost margins of small firms do not tend to follow those of large firms. This supports the theory that small firms pursue a strategy of producing in distinct product niches. Copyright International Atlantic Economic Society 1999

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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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  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. 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.
  3. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, June.
  4. 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.
  5. Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, June.
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