Can Small Firms Find and Defend Strategic Niches? A Test of the Porter Hypothesis.

A number of studies have found a positive relation between market share and profitability. Michael Porter argues that this need not hold when small firms find strategic niches protected by mobility barriers. This paper examines that hypothesis by comparing the profitability of large and small lines of business when the activities of the two groups (proxied by the allocation of sales across submarkets) differ on average. The authors find that, in heterogeneous product mix industries, profits of large lines of business are no longer significantly greater than profits of smaller rivals, except that market leaders maintain their advantage regardless of product mix. Copyright 1989 by MIT Press.