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The market share‐profitability relationship: An empirical assessment of major assertions and contradictions
Author(s) -
Prescott John E.,
Kohli Ajay K.,
Venkatraman N.
Publication year - 1986
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.4250070407
Subject(s) - spurious relationship , profitability index , context (archaeology) , homogeneous , market share , path analysis (statistics) , econometrics , marketing , business , accounting , economics , statistics , mathematics , finance , paleontology , combinatorics , biology
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.