How Do Firms Build Market Share?

84 Pages Posted: 22 Apr 2021 Last revised: 24 Apr 2021

See all articles by David Argente

David Argente

Pennsylvania State University

Doireann Fitzgerald

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Sara Moreira

Northwestern University

Anthony Priolo

Lancaster University - Lancaster University Management School

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Date Written: March 25, 2021

Abstract

Firms are born small, grow, and die. We investigate an explanation for this process based on frictions in the accumulation of customers, across and within markets segmented by geography. We use matched retail scanner and TV advertising data on consumer food to show that entrants grow both by adding customers in new markets and by reaching new customers in continuing markets. Growth in market share within markets is not associated with changes in markups, but is associated with advertising. We use these facts to motivate and estimate a structural model of customer accumulation within and across markets. This allows us to estimate both the distribution of intrinsic heterogeneity across firms, and frictions in the accumulation of customers. We find that these frictions contribute substantially to heterogeneity in firm size, and to the gradual process of firm growth.

Suggested Citation

Argente, David and Fitzgerald, Doireann and Moreira, Sara and Priolo, Anthony, How Do Firms Build Market Share? (March 25, 2021). Available at SSRN: https://ssrn.com/abstract=3831706 or http://dx.doi.org/10.2139/ssrn.3831706

David Argente

Pennsylvania State University ( email )

606 Kern Building
State College, PA 16801
United States

Doireann Fitzgerald

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Sara Moreira (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Anthony Priolo

Lancaster University - Lancaster University Management School ( email )

Economics Department,
LUMS,
Bailrigg Lancaster, LA1 4YX
United Kingdom

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