market share Peter McKiernan Marketing managers regard market share as a critical factor in the determination of prof- itability and competitive position, but this view is not shared by all academics. The relationship between market share and returns is one of the most examined topics in economics and manage- ment research. The principle is simple. It was well known to nations and empires throughout the ages i.e., that capturing a large market share heralds a multitude of benefts due to the increasing scale of operations but, should these operations become too large, then deceasing economies set in due to control, ineffciency, and regulatory issues. In corporate terms, the dominant thinking, stemming from the feld of industrial economics, was that a large market share meant lower costs and greater profts (as a direct causal linkage) with additional benefts in terms of increasing reputation and bargaining power and resilience in recession (see, e.g., Buzzell, Gale, and Sultan, 1975). However and typically, academics began to disagree on the theoretical explanations of the direct link between the two variables, with some claiming that intervening variables such as chance and prior proft levels explain the identifed higher profts rather than market share alone (see, e.g., Rumelt and Wensley, 1981; Jacobson and Aaker, 1985). However, work by Laverty (2001) suggests that the original direct correlation between market share and returns, which spawned a large collection of econometric studies, is a spurious one and due to the vagaries of the statistical assumptions used in the studies. But, more recently, this result was contradicted by Chu, Chen, and Wang (2008) who, claiming to correct for the statistical errors of previous studies, found that the original direct link holds still in the securities sector. Alas, Yannopoulos (2010), using Canadian data, found neither a linear nor a nonlinear linkage. Whatever the disagreements among academics, managers share a faith and hope in the causal path between the two. American business history provides some useful explanatory background. The industrial revolution gave birth to many small frms that grew over the years to become dominant single businesses in a large US market. But, once the US market growth stabilized in the 1960s and competitors entered main markets, incumbent frms fought to retain or increase market share as market size leveled off. Dominant single busi- nesses began to fragment into single business units (e.g., GE in 1970), with interests across a spread of sectors, introducing the notion of “portfolios” of products and businesses (see later). Bruce Henderson, founder of the Boston Consulting Group (BCG), had many active briefs at this time, for example, with Norton in industrial tapes and General Instruments in electronic components. He noticed that costs fell rapidly in such organizations due to both the effects of size (scale economies) and learning (experience economies). The former effects were well known due to the pioneering “engineering studies” of Joel Bain in the 1950s at Harvard, but the latter were novel. Those frms that accumu- lated most experience saw all costs (i.e., capital, administration, research, and marketing) fall more sharply than those of lesser experience, as learning was passed from one product to another through technological displacement and product evolution. As Henderson said: If cost is a reciprocal function of total experience then cost is also a function of market share. Those products in which a competitor has a large markets share should be expected to be those in which he has a competitive advantage in cost. Those compa- nies which are growing faster than the competition should be increasing their competitive advantage as a consequence. Henderson (1988) Henderson weaved this concept into the well-known BCG share–growth matrix that is used to assess a frm or brand’s success by its position in the market relative to competitors. An absolute market share of 20% would be huge in many sectors but may be remote in others. To be of more use, the BCG compares share in relation to the largest player in the sector, and this shows marketing managers how products or brands stand up against the market leaders across sectors. Absolute versus relative is only part of the market share measurement problem. The primary issue is to decide in which “market” or Wiley Encyclopedia of Management, edited by Professor Sir Cary L Cooper. Copyright © 2014 John Wiley & Sons, Ltd.