Do Businesses Get Stuck in the Middle? The Peril of Intermediate Market Share

Abstract

The quest for stylized facts regarding market share and natural market structures is not new, however extant research has predominantly concentrated on share rank and distribution. Using a sample of 220K firm-year observations representative of the US economy over four decades, this study reexamines the relationship between market share and profitability. The results indicate that being ‘stuck in the middle’ is a prevalent and empirically generalizable phenomenon that persists decade after decade even as average industry profitability decreases. Businesses with roughly 3%-11% intermediate market share appear to be stuck in the middle between specialists and generalists and find themselves at significant financial performance disadvantages across industry groups. The relationship consistently follows a non-linear pattern which must be taken into account during research design and sampling.

Keywords: Market Share, Stuck in the Middle, Generalist, Specialist, Financial Performance, Industrial Organization, Empirical Generalization

JEL Classification: D01, D22, D4, L11, L16, L21, L22, L25, L26, L60, L70, L80, L90, M30