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The Market Share-Profitability Relationship: An Empirical Assessment of Major Assertions and Contradictions

John E. Prescott, Ajay K. Kohli and N. Venkatraman
Strategic Management Journal
Vol. 7, No. 4 (Jul. - Aug., 1986), pp. 377-394
Published by: Wiley
Stable URL: http://www.jstor.org/stable/2486069
Page Count: 18
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The Market Share-Profitability Relationship: An Empirical Assessment of Major Assertions and Contradictions
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Abstract

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.

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