Cultural niche dimensionality and small firm subsistence

In populations of human organizations (e.g. firms) that operate in cultural niches (markets), size differences are usually large. As large organizations can in principle out-compete small ones, the actual presence of many small organizations asks for an explanation. In ours, we focus on the dimensionality of cultural niches, that can change as a consequence of product innovations, preference elaboration, or institutions. We show that increasing market dimensionality substantially enlarges the market periphery relative to the market center, which creates new potential niches for small firms. Decreasing dimensionality, in contrast, preserves market positions for a portion of the incumbent small firms rather than forcing all of them to exit. We thereby provide a parsimonious explanation for small firm existence when dimensionality changes, even in concentrated markets and net of other factors.