Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/85455 
Year of Publication: 
1998
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 98-013/3
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
Despite the pervasive phenomenon of scale economies the majority of firms hasalways been small firms. The emergence of small firms as a means of economic development on both sides of the Atlantic has been one of the major new topics of economic policy since the 1980s. This has drawn renewed attention to the question of how small firms are able to exist. The theories of strategic niches and dynamic complementarity imply that small firms seek out markets where they are able to avoid competition with their larger counterparts. Inthis paper we test the validity of these theories by examining the extent to which small-firm profitability is set by large-firm profitability. We find considerable evidence that the price-cost margins of small firms do not tend to follow those of large firms. This is interpreted as supporting the theories that small firms pursue a strategy of producing in distinct productniches.
JEL: 
L0
L6
Document Type: 
Working Paper

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