In recent years, a growing number of business practitioners and theorists have postulated that one way for a company to increase its return is by increasing its market share, and studies appear to have confirmed this relationship. Given this direct link between profit and risk, it behooves companies to manage their market shares with the same diligence as they would manage any other facet of their businesses. This concept of managing market shares leads to some intriguing possibilities. Although most companies can profit by attempting to increase their market shares, some may conclude that they are at the point at which expected costs and risks outweigh expected gains. Capturing a dominant share of a market is likely to mean enjoying the highest profits of any of the companies serving that market. But high market share can also mean headaches. Companies possessing it are tempting targets for actual and potential competitors, consumer organizations, and government agencies. These companies cannot aggressively seek larger shares because further gains may break the dam and let the waters of antitrust action pour in. In some cases, these companies may even have to give up some share to stem the tide. The company that acquires an extremely high market share exposes itself to several risks that its smaller competitors do not encounter. Competitors, consumers, and governmental authorities are more likely to take certain actions against high-share companies than against small-share ones. Smaller competitors, for example, can direct certain types of attack against larger organizations, attacks that would not work as well against companies of equal or smaller size. Potential competitors also present problems because they may see the company with the largest share as the only competitor stopping them from capturing a portion of the profits being earned in a particular industry. Clearly, some large multiproduct companies have had considerable success in entering lucrative markets previously dominated by one or a few organizations. The high market-share company also must cope with antitrust initiatives taken by the government. Rather than wait for conclusive evidence that the conduct within an industry has been anticompetitive, these agencies have acted primarily because non-competitive market structures have allegedly existed. One might say that these companies are now being penalized for their success. More high market-share companies can expect antitrust suits when the FTC begins to exercise its newly won authority to require line-of-business reporting from major corporations. With such attention focused on their daily operations, multiproduct companies will find it harder to disguise their dominance of a particular market, although they may be able to disguise its profitability through arbitrary allocations of fixed overhead. Congressional pressure to fight inflation through stepped-up enforcement of the existing antitrust laws will also cause severe headaches for many high market-share companies. The degree of risk depends on how the company has obtained its high market share. To the extent that its success is based on continuous innovation and/or lowering of costs and prices to buyers, consumers and the government may feel less hostile to the company, and competitors may feel less able to attack it. Both economic theory and empirical evidence suggest that profitability increases with market share. Consider the case of a company with a fixed plant size. Beyond the breakeven point, the company’s profits increase with its sales volume. Now consider the company that can expand its plant and market size. A larger company can afford better equipment or more automation that lowers unit costs. One of the best and most recent is the Marketing Science Institute’s “Profit Impact of Market Strategies” project. The PIMS study shows that businesses with market shares above 40% earn an average ROI of 30%, or three times that of those with shares under 10%. However, the PIMS study does not reveal whether profitability eventually turns down at extremely high market-share levels.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath