Entrepreneurial Firms: With Whom Do They Compete, and Where?
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Entrepreneurial Firms: With Whom Do They Compete, and Where? Marc Cowling1 · Simon Peter Nadeem2
© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Many different theories that have attempted to explain why smaller entrepreneurial firms exist. Surprisingly, very little empirical work has tested the obvious questions, such as: Are small firm’s price-takers in highly competitive markets? Who do they compete against? What if they try to raise prices? Does innovation offer niche market protection? Using a large UK data set our key findings are that less than 5% of entrepreneurial firms operate in markets where they effectively have no competition and a quarter of all small firms would lose at least a third of their sales if they raised prices by 10%. Keywords Competition · Entrepreneurship · Market structure · Market niches · Small business
1 Introduction The study of entrepreneurship and entrepreneurial behaviours over the last 40 years has provided some important insights: What entrepreneurial firms do when faced with competition (Dodge et al. 1994; Lechner and Gudmundsson 2014; Covin and Slevin 1989); how their agility can be an asset in times of economic crisis (Bradburd and Ross 1989); how they can find and defend strategic niches (Papadogonas and Droucopoulos 2015; Bradburd and Ross 1989); and the decision to internationalise (Brush et al. 2015; Cowling 2003).
* Marc Cowling [email protected] Simon Peter Nadeem [email protected] 1
College of Business, Law, and Social Sciences, University of Derby, Derby D22 1GB, UK
2
Business School, University of Derby, Derby D22 1GB, UK
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M. Cowling, S. P. Nadeem
But this literature has been strangely silent about formally establishing precisely the markets in which these firms operate (other than international or domestic) and the exact nature of the competition and the prices that they face in these output markets. Economics, by contrast, has well established definitions and theories about markets and competition. For example, Robinson (1934) and Stigler (1957) describe the conditions under which perfect competition would exist. Stigler (1964) and Sweezy (1939) define oligopoly. Machlup (1952) describes imperfect competition, and Bain (1956) sets out a context in which barriers to new firm entry exist and hence prevent competition. Chamberlin (1937) describes the theory of monopolistic competition, whilst Baran (1966) sets out the theory of monopoly, and Baumol et al. (1977) consider the special case of a natural monopoly. But, since the development of the production function to a large degree excluded a role for the entrepreneur (Cowling 2003; Niman 1991), mainstream economics has largely ignored smaller, entrepreneurial businesses from empirical investigation despite a voluminous body of literature that is concerned with the effects of imperfect competition, barriers to entry, and market concentration on the profitability of large incumbent firms (Bain 1951; Cowling and Waterson 1976; Conyon and Machin
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