Do small firms breathe heavily down the necks of their larger brethren?: an empirical examination of the theory of strategic niches

Abstract

Empirical studies in Industrial Economics have shown that most industries are characterized by the co-existence of a small number of large firms and a large number of small firms. According to a recent line of thought, the theory of strategic niches, small firms do not directly compete with large firms but prefer to occupy fringe markets, where they can achieve high profits. In this paper we test this hypothesis by comparing the relative specialization of small and large firms (measured by a novel variation of the well-known Balassa index) in Greek manufacturing. The results suggest that, contrary to the above-mentioned theory, on average it is large firms that choose to produce in product niches, and this is especially noticeable in industries with low concentration.