Market share as a source of market power: Implications and some evidence

J ECO BUSN 1985; 37:343-363

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Market Share as a Source of Market Power: Implications and Some Evidence Stephen A. Rhoades

This paper investigates the proposition that firms with a high market share enjoy a unique form of market power--"inherent product differentiation." The analysis is based on a sample of 6492 banks, during the 1970s. Tests tend to control for market concentration, scale economies, and explicit product differentiation as factors influencing rates of return. Test results indicate that market share per se is a source Of high profits, regardless of the level of concentration and after controlling for firm size. These findings question the Demsetz (1973) view that high profits of market leaders are due to efficiency rather than to some form of market power. These findings suggest that traditional market models that account only for a single price may be incomplete. The paper suggests a kind of simple model that would account for the existence of multiple prices in a market.

I. Introduction In the industrial organization literature during the past decade, an important idea has emerged, albeit sporadically. The idea is that individual firm market share is a source of market power that is distinct from the market power associated, in traditional theory, with an oligopolistic market structure. If true, this has important implications for theory and policy, as will be explained in the next section. The importance of this idea seems to have gone unnoted (which may explain its sporadic treatment), probably because the studies that have looked at market share as a source of market power have tended to focus on the empirical relationship with little or no attention given to the implications of such a relationship. Nonetheless, all of these studies have made a useful contribution in that they have focused on and found evidence of a previously unspecified source of market power, l Although these studies have found Stephen A. Rhoades is with the Board of Governors of the Federal Reserve System, Washington, D.C. The views expressed herein are the author's and do not necessarily reflect the views of the Board or its staff. The author thanks Karen Eckert for the programming conducted for this study. He also thanks Loren Weeks for initiating a literature search and preparing some of the initial tabulations in the analysis. The author appreciates comments received from Alan Daskin, Gerald Hanweck, John Rose, Alice White, and John Wolken. Finally, an unidentified referee provided unusually constructive comments. These studies include Shepherd (1972), Gale (1972), Dalton and Levin (1977), and Porter (1979). Journal of Economics and Business © 1985 Temple University

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Stephen A. Rhoades some evidence of a market share-market power relationship, the findings remain quite tentative because of serious sample and measurement problems. Under the circumstances, it is useful to spell out the implications of a market share-market power relationship, if it exists, and to attempt to formulate tests for the relationship that avoid problems of the earlier empirical studies. 2 This study proceeds as follows. First, it discusses briefly the implications of market share as a source of monopoly power. Second, it examines the sample and measurement problems that weaken confidence in the findings of previous studies. Third, the rationale for expecting market share to be a source of market power is presented. Fourth, the study proposes and tests for the possibility that market rank rather than market share is the essential source of observed market power. Finally, tests of the market share-market power relationship, which largely overcome the sample and measurement problems of earlier studies, are conducted. The framework of the analysis is such that it will be possible to determine the source (i.e., scale economies, product differentiation policies, or perceived product differentiation deriving from market position per se) of any apparent market power. The different sources of market power have, of course, different implications for public policy.

II. Implications, Analytical Problems, and Source of Power

Implications If, indeed, market share is proven to be a unique source of monopoly power, distinct from that attributable to overall market structure, then important implications exist for both microeconomic theory and antitrust policy. With respect to theory, if market share is relevant, the traditional models of micro theory are deficient--none of them even suggest the possibility (barring economies of scale) that firms with relatively large market shares will earn relatively high rates of return as a consequence of their market position. Although the view that theory, does not account for the role of market share differs from that of Shepherd (1972), both Dalton and Levin (1977) and Porter (1979) draw this conclusion. Furthermore, a review of the basic pricing models of traditional micro theory support this position. Thus, in the model of pure competition, the pricing and output solutions are based on assumptions that would not allow the larger firms to earn higher rates of return than others. The models for imperfect competition (both small and large numbers) developed by Chamberlin allow for changes in prices and output, but these are the result of the firms in a market reacting in unison to a competitor's action. The resulting price and output solutions are jointly determined by firms that are subject to identical real and perceived demand curves. 3

2 It should be noted that some recent work has found that some companies with low market shares have been particularly successful. This finding may tend to be the exception but it may also illustrate the operational result of the concept of strategic groups within industries. That concept is discussed later in more detail. See Woo and Cooper (1982). 3 It is notable that in the discussion (Chapter IV) leading up to the presentation of his formal models, Chamberlin (1965) argues that within some (imperfectly competitive) markets, firms produce goods that are close substitutes, although each may be slightly differentiated from that of its competitors. Thus, it is possible that he anticipated that generally, one or more firms produce a good that is more differentiated than those of other firms. However, this possibility was never stated, and in the formal models (Chapter V) all firms in a market are subject to demandcurves (perceived and real) of the same slope and charge the same price, reflecting the view that all of the firms have the same degree of product differentiation, whatever the source.

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Even in the Sweezy (1939) or Hall and Hitch (1939) kinked demand curve models, which explicitly permit differences ~n rates of return between firms as a result of the kink, any rate of return differences would be due to cost differences, rather than to the shape of the demand curve faced by the firms. 4 Finally, the most practical extensions of the theory of pricing in imperfect markets--the price leadership models--give no hint that long-run price differences will persist among firms in the same market. Thus, the price leadership models (i.e., collusive leadership, barometric, and dominant firm) are basically attempts to explain methods for coordinating price behavior in oligopolistic situations in order to avoid price competition. Even there it is not necessarily assumed that the market leader, in terms of share, will be the price leader. Of all of the price leadership models, the dominant firm model seems the most likely candidate for allowing the persistence of price and rate of return differences between the market leader and others, inasmuch as it attempts to explain price formation in an industry that is dominated by a single firm with a group of peripheral firms. 5 The dominant firm presumably has no price coordination problems and simply sets a price that the peripheral firms follow. In this model, it is possible (though unlikely because of its dominance) that the dominant firm would set a price that is higher than one that peripheral firms care to set. But in this situation, the dominant firm would see its market share erode as the lower prices of the peripheral firms attract customers. Such a price difference is thought to be a short-run phenomenon, because the dominant firm, not wishing to see its market share steadily shrink, is expected to reduce prices in line with the peripheral firms or to adopt policies (perhaps coercive) that would encourage the peripherals to raise prices. As in the other models, the pricing action of firms is such that prices in the market will generally be the same. From the discussion above, it is apparent that none of the traditional models of micro theory suggest that market share will yield market power that is reflected in rates of return. Thus, if market share is found to yield such power, an important deficiency in our oligopoly models will have been revealed, particularly because market-share differences are inherent in virtually every economic market. 6 In short, market share could conceivably be as fundamental to the existence and exercise of market power as is overall market structure. 7 4 Differences in price may exist in this model in that a firm may unilaterally increase price above the price at the existing kink (it is assumed that any price decrease would be matched by all competitors) and move up the highly elastic upper portion of the demand curve. However, because of the large loss in market share resulting from even a modest increase in price above that of rivals, the authors do not regard such a price differential as a stable long-run situation but rather as behavior that might be expected to occur as a result of some short-term strategy. In any event, the price differences that may exist within the framework of the kinked demand curve model are not due to differences in the shapes of the demand curves facing individual firms, because they all face the same elastic curve above the kink and a less elastic curve below the kink. 5 A good discussion of price leadership models may be found in Scherer (1980). 6 The question may arise, Why do structure-performance studies find evidence of market power (high rate of return) only in the more concentrated industries if market share as a source of market power is inherent in unconcentrated industries as well as concentrated ones? A possible explanation is that a lowconcentration industry is not conducive to the coordination of pricing policies that would achieve joint profit maximization for all participants but a high-concentration industry is. As a consequence, whereas all firms in a high-concentration industry will earn a high rate of return, only one or a few of the leading firms in a low-concentration industry would be the beneficiaries of a high rate of return, due to their position. Under these circumstances, it is to be expected that the low-concentration industry, taken as a whole, would exhibit a low rate of return. 7 A simple diagrammatic model that may be appropriate in accounting for market share as a source of market power, which implies at least two prices, is suggested in the appendix.

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Stephen A. Rhoades A market share-market power relationship has some fairly important implications for antitrust policy as well as micro theory. For example, the existence of this relationship suggests that individual-firm market share rather than, or at least in addition to, overall market structure (measured by, for example, a concentration ratio) should be the guide to the direction of resources for antitrust enforcement. More specifically, it would suggest that industries that appear to have a relatively competitive overall structure may actually have a market power problem that is not apparent from overall industry performance. Thus, mergers or other developments within a market that enhance the market share of the leader would warrant attention. In connection with antitrust policy toward mergers, it may be appropriate for the Justice Department to challenge conglomerate mergers in which a firm seeks to expand into a new market by acquiring one of the market leaders. This is particularly relevant to the banking industry, because large numbers of market extension mergers take place and many of these are difficult to challenge because the courts have not yet accepted the applicability of the theory of potential competition s (a primary antitrust tool for the analysis of product or market extension mergers) to banking. 9

Analytical Problems The attempts to test the market share-market power relationship faced several major analytical problems in connection with the samples and measures used. For one, in order to obtain individual firm data for market leaders, early studies relied on existing data sets that are typically composed of a relatively small number of very large firms. 10As a result, the findings may reflect certain advantages of size per se, such as ready access to the capital markets and lower cost of funds. Second, by focusing on large firms, which tend to be diversified, measured rates of return will reflect profits from various industries with different structural and risk characteristics and with the classic problem of allocating overhead costs among different activities. Third, common sense suggests that there will be a high degree of correlation between market concentration and market share and, in fact, at least some of the studies have encountered this problem, l l Although the use of interaction terms may help to

s The antitrust authorities have been unsuccessful in numerous court cases in attempting to apply the theory of potential competition to banking. See, for example, U.S. vs. Marine Bancorporation (1974), U.S. vs. Connecticut National Bank (1974), Mercantile Texas Corp. vs. Board of Governors (1981), and Republic of Texas Corp. vs. Board of Governors (1981). 9 This shortcoming in the analytical tools for dealing with bank mergers may be the basis for a dramatic change in U.S. banking structure if the prohibition on interstate banking is removed. There would seem to be little foundation for preventing the largest banking organizations in the country from acquiring large banks in states throughout the country. This is not simply a hypothetical situation, inasmuch as various proposals are being considered in policy circles in Washington and the states are beginning to establish regional reciprocal arrangements. For example, the New England states have already established such an arrangement, and several states in the southeast are attempting to work out a reciprocal arrangement. ~o For example, Shepherd (1972) focused on 231 of the 500 largest industrial firms using data from the Fortune Directory; Gale's analysis (1972) was based on data for 106 large industrial firms for which data were available from Standard and Poors Compustat Tape; Dalton and Levin's study (1977) is based on data for 97 of the 1000 largest manufacturing firms of 1950; and Porter's sample consists of the leading firms in 38 rather broadly defined IRS " M i n o r " industries, one of which is about the equivalent of a twoand-a-half-digit SIC industry. 11 The Shepherd study reported a +0.51 correlation between market share and concentration, the Dalton and Levin study (1977) reported an extreme collinearity problem, and in this study a correlation of + 0.61 is found.

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overcome the statistical problem, the actual separate effects of concentration and market share are much less clear than they might be. If, however, the samples were larger, enough observations at each concentration level would exist to permit tests for the influence of market share on rate of return in a set of markets with the same overall industry structure (i.e., concentration). Finally, if, as will be argued later, the market power arising from market share is due to product differentiation, there are such large differences in the importance of product differentiation among the industries investigated that it is virtually impossible to account adequately for these differences. Further, if there is product differentiation that is unique to market leaders (in the buyers' perceptions) irrespective of specific product differentiation policies, then the varying product differentiation policies will make it almost impossible to distinguish product differentiation that is inherent in a leading market position. These comments on the sample and measurement problems encountered in the earlier studies should not be construed as critical. The authors are fully aware of the problems that are inherent in the data available for investigating this issue in the industrial sector. Thus, Porter observed that, " . . . securing financial performance data for individual firms in a large sample of industries is hampered by the consolidated financial results of diversified companies and the presence of privately held firms in most industries" (Porter 1979). The problems are also highlighted by Shepherd's extensive efforts to grapple with them in his detailed discussion of his data and sample (Shepherd 1972). All of the problems outlined above can be substantially overcome by focusing the analysis on the banking industry. For one, data are reported in a consistent manner by all insured commercial banks in the country. 12 Second, a very large number of banks are strictly unit banks. These tend to be small and to operate in only one market, with no affiliates or branches in other markets. 13 Using such a sample for testing purposes avoids the problems arising from diversification and large firm size. Furthermore, because commercial banking is basically a local-market industry, 14 particularly with respect to smaller banks, 15 the performance of unit banks is dependent primarily upon the structural configuration of a single market and the banks' positions in a single market. 16 In short, by confining the analysis of the market share-market power relationship to unit banks, we have a large sample of relatively small, undiversified firms that operate in relatively well-defined markets and for which standardized data are available. There are two further benefits to be derived from focusing on banking. One is that ~z There are only about 300 banks in the U.S. out of about 15,000 that are not insured by the Federal Deposit Insurance Corporation. J3 Of course, branch banks and banks that are part of a multibank holding company system are often diversified across markets. ~4 The local-market nature of commercial banking has been recognized by the courts (e.g., Philadelphia National Bank Case, 1963), is generally accepted, and has proven workable for research. See Rhoades (1982). ~5 Large banks make some loans and acquire some deposits in a regional or national market. The lending and deposit-gathering activity of small banks tends to be confined to the markets in which they are located. 16 Although the local-market nature of banking probably still holds true for the majority of consumers, it must be noted that competition for deposits and installment loans has expanded beyond the local market for upper-income customers due to, for example, money-market mutual funds and sophisticated creditcard arrangements, Other developments, such as electronic-funds transfer, may erode the local-market concept.

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Stephen A. Rhoades product differentiation policies are less important in banking 17 than in the industrial sector and will tend to be similar across markets. As a consequence, if market share is found to be directly related to rates of return for banking, it is unlikely that this result would be caused by explicit product differentiation policies but rather would indicate that the difference is due to something inherent in market share. The second benefit is that the sample available for testing is so large that it will be possible to investigate the market share-market power relationship for sets of banks subject to essentially the same level of market concentration. Because concentration will not have to be included as a control variable, we can avoid the problem of collinearity between market share and market concentration without utilizing an interaction term for testing.

Source of Power Because traditional theory does not suggest a relationship between individual-firm market share and monopoly power, it might be argued that earlier empirical findings of a direct relationship between market share and rate of return simply indicate that the market share measure is reflecting other factors. Thus, because market share tends to be directly associated with size, the relatively high rate of return experienced by high-market-share firms may simply be a result of scale economies. Or, because market share tends to be directly associated with market concentration, the relatively high rate of return may be attributable to traditional monopoly power. Or, finally, the high market share (and high profit) enjoyed by a firm may be the result of explicit product differentiation strategies (e.g., advertising, marketing, packaging, technical change), and it maintains this position through continuing, effective strategies. If the relatively high rate of return of high-share firms is due to the kinds of factors just described, it is important to isolate the responsible factor so that we do not continue to attribute high rates of return to market share per se rather than to traditional sources of high profits--scale economies, market concentration, and product differentiation. If, on the other hand, we can rule out such traditional factors in explaining the observed relationship, an alternative explanation is required. The alternative proposed here is that product differentiation is inherent in being a market leader, regardless of explicit product differentiation strategies lS--that is, we are dealing with an "inherent product differentiation," rather than with product differentiation in the usual view. Although it is difficult to develop a distinct, formal model of "inherent product differentiation," elements of both business and consumer behavior, along with some theoretical arguments in economics, support this line of argument. Business ~ Based on 1976 data for 800-900 generally medium-size banks that participate in the voluntary Functional Cost Analysis Program sponsored by the Federal Reserve System, publicity and advertising expenses account for about 0.1% of total assets and about 1.5% of total operating expenses. Within individual markets, product differentiation will exist due to differences in convenience (especially for consumer banking) and customer loyalty due to loan arrangements (especially for business customers). The extent to which a bank specializes in the consumer market will be picked up by our variable measuring loans to individuals. However, product differentiation differences between markets are likely to be small in comparison to such differences in the industrial sector (e.g., automobiles vs. steel or cosmetics vs. machine tools). ~s Although they lumped this explanation in along with other explanations, Dalton and Levin (1977) specifically emphasized the possibility of product differentiation that is unique to market leaders.

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periodicals often report, for example, that a firm plans to diversify into a new market but will do so only if it can enter as a market leader. These firms apparently see some advantage to market leadership. Furthermore, standard advertising strategies seem to be based on firms' belief in such advantages. Thus, market leaders commonly advertise that they are the largest or one of the largest firms in the market or that more consumers use their brand than any other brand. Because advertising claims regarding market position of the firm provide no visual appeal or direct information about the quality or price of the product, firms evidently believe that a leading market position will appeal to consumers. Otherwise it is hard to explain the prevalence of such advertising claims. Both informal empiricism and formal psychological studies of individuals tend to support the notion that market leadership leads tO "inherent product differentiation." At the informal level we observe, in many cases, that consumers seem to follow a herd instinct based on a desire to conform. Casual observation of clothing trends, for example, suggests a strong tendency for individuals to conform to what others are doing. For teenagers, frequently only a certain brand (not just style) of shoes, pants, or shirts is "acceptable." These items often seem outrageously priced, but nothing else will do. For adults, a change by clothing designers in the length of hem lines, the width of jacket lapels, the width of ties, or the height of shoe heels will lead people to replace perfectly good clothes at substantial cost. Such behavior reflects an obvious effort to conform to the group--to " l o o k good" based on what everyone else apparently thinks "looks g o o d . " Individuals will often conform even when they do not personally find the new style attractive or appropriate. Psychologists have developed more systematic evidence on conformity. ~9 In a classic experiment by Asch (1956), for example, a subject was asked to compare one line (X) with three others. One of the other lines was the same length as line X, and the other two clearly were not. The subject was told to select the line that was equal in length to line X. Several other people in the room were privately instructed to pick the wrong line. When the subject's turn came, he frequently conformed to the group's (incorrect) judgment, even though the correct answer was obvious (pp. 18-20). Some theoretical work in economics has suggested the possible importance of market share in influencing consumers' choice of products. For example, in a classic article on consumer ignorance as a source of oligopoly power, Scitovsky (1950) observed, " . . . the most important obstacle to entering the uninformed market is the ignorant buyer's habit of judging products by the size, age, and reputation of the manufacturing firm--in short, by the good will of the f i r m . " Further, this " . . . gives a very important advantage to the large firm over the small and to the established producer over the unknown newcomer" (p. 51). More recently, in discussing information search by consumers, Salop (1976) suggested that consumers may use what I call the " i f it's one of the biggest, it must be g o o d " approach to shopping as a convenient rule of thumb for reducing information costs. In Salop's words, " T h e r e are important interactions (externalities) among consumers in the process. For example, if a consumer (having had one economics course) thinks that search by other consumers keeps the market honest so that price reflects quality, he need gather no information himself but will purchase the commodity with the greatest market share" (p. 241). In a theoretical analysis of the adoptive response of ~gSee Aronson (1980), especially Chapter 2 on conformity.

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Stephen A. Rhoades consumers to product failure, Smallwood and Conlisk (1979) suggest the possibility that consumers may buy the high-market-share brand because of the large shelf space the brand enjoys and because o f its popularity. If leadership claims do appeal to consumers, whether to conform with the group or to reduce information costs, market leadership or market share itself confers benefits on market leaders above and beyond the benefits gained from basic advertising messages and other standard product differentiation strategies. This would suggest that market leadership is a unique source of product differentiation inherent in a leading market position--' 'inherent product differentiation' ' - - g i v i n g market leaders an opportunity to sell their products at premium prices even if the quality of their products is identical to that o f their competitors. Taken together, I believe the behavior and perceptions of businesses and consumers provide a plausible foundation for the concept o f "inherent product differentiation." " I n h e r e n t product differentiation" is a unique element of product differentiation that is only available to market leaders. In a relatively competitive industry, in which specific product differentiation policies are inconsequential, the market leaders will face a slightly less elastic demand curve than other firms as a result o f "inherent product differentiation." This difference should hold up as well in industries in which product differentiation policies are important. Thus, in oligopolistic industries in which explicit product differentiation policies are typical (especially in consumer goods industries), the "inherent product differentiation" of market leaders conveys an additional element of product differentiation to the market leaders. This additional element of differentiation results from the fact that all o f the firms will conduct product differentiation programs that generally tend to offset one another. If, for example, one firm initiates a new giveaway program or advertising campaign, other firms (including market leaders) will respond rather than have their market share eroded. 20 By such explicit strategies, all firms manage to differentiate their products to about the same degree. However, none but the market leaders benefit from "inherent product differentiation."21 This results in a slightly less elastic demand curve for the leaders and permits the existence of a long-run price differential between the leaders and other firms. In short, market share benefits to the firm from "inherent product differentiation" should be apparent in high- as well as lowconcentration markets. The argument advanced above suggests the possibility, from an empirical standpoint, that market rank rather than market share may be the key to enjoying "inherent product differentiation. ''22 For example, in a relatively concentrated industry the fourth- or fifth-ranked firm may have a larger market share than the 20 Systematic evidence of this action-reaction behavior has been presented in connection with the use of games of chance in both food and gasoline retailing in Federal Trade Commission. 2~ Of course, a firm may be a market leader as a result of having been the first firm in a new industry, or as the result of major innovations, or as a result of a particularly successful marketing strategy. Thus, in the short run, particularly during the formative years, the market leader may be a leader as a consequence of explicit product differentiation strategies. This, however, tends to be a transitory situation. In the longer run, as most industries grow beyond their formative years and into maturity, these real, early differences tend to fade away as other firms adopt the technology and other strategies of the early leader. Typically, the industry assumes an overall structure that is characterized by a log-normal distribution of firms. On this point, see Hart and Prais (1956). 22 Rank provides different information than does market share about a firm's market position. It explicitly accounts for the position of a firm relative to its competitors.

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l e a d i n g firm in a l e s s - c o n c e n t r a t e d industry. I f we assume " i n h e r e n t p r o d u c t d i f f e r e n t i a t i o n " exists across industries with all kinds o f structures, we w o u l d e x p e c t the l e a d i n g firm in an unconcentrated industry to e n j o y " i n h e r e n t p r o d u c t d i f f e r e n t i a t i o n , " but it is not so clear that the fourth- o r fifth-ranked f i r m in a c o n c e n t r a t e d industry w o u l d reap this benefit even though it has a l a r g e r m a r k e t share than the topranked firm in an unconcentrated industry. This is basically an e m p i r i c a l question and, fortunately, another benefit from conducting the investigation in c o n n e c t i o n with b a n k i n g is that sufficient data are available to conduct tests based on rank as well as m a r k e t share.

III. Sample and Data The s a m p l e selected for this analysis includes 6492 strictly unit banks that were in existence o v e r the entire p e r i o d 1969-1978.23 Because each o f these banks o p e r a t e s in only one market, m e a s u r e d rates o f return will reflect the m a r k e t structure and conditions o f a single market. F u r t h e r m o r e , use o f this s a m p l e will rule out d i v e r s i f i c a t i o n as a factor influencing risk-taking b e h a v i o r , the allocation o f o v e r h e a d costs, and the centralization o f certain operations. 24 Thus, from the standpoint o f b o t h market- and f i r m - s p e c i f i c factors, this sample is p a r t i c u l a r l y well suited for a n a l y z i n g the r e l a t i o n s h i p b e t w e e n m a r k e t share and m a r k e t p o w e r - - w h e r e rates o f return are indicative o f m a r k e t p o w e r . F u r t h e r m o r e , because the p e r i o d c o v e r e d p r e c e d e s the D e p o s i t o r y Institutions D e r e g u l a t i o n and M o n e t a r y Control A c t (1980) and the G a r n St G e r m a i n Act (1982), the results should not be distorted by the d e r e g u l a t i o n o f b a n k i n g and other d e p o s i t o r y institutions e m b o d i e d in these acts. The d e p e n d e n t v a r i a b l e in the multiple r e g r e s s i o n analysis is a rate o f return m e a s u r e that is intended to reflect w h a t e v e r m a r k e t p o w e r m a y be a v a i l a b l e to the individual firm. This is m e a s u r e d by the annual a v e r a g e ( 1 9 6 9 - 1 9 7 8 ) o f net i n c o m e after taxes and securities gains and losses as a p e r c e n t a g e o f total assets. 25 O f c o u r s e , the firm m a r k e t share v a r i a b l e is the p r i m a r y independent variable in this analysis. It is c a l c u l a t e d as the annual a v e r a g e (1969-1978) p e r c e n t a g e o f m a r k e t deposits held by a bank. 26 Because other market- and firm-specific factors are also l i k e l y to influence rates o f return, additional variables are included to control for these factors in an attempt to isolate the influence o f m a r k e t share on rates o f return. Because overall m a r k e t structure is a source o f m a r k e t p o w e r due to m o n o p o l y a c c o r d i n g to traditional m i c r o theory, it is important to account for m a r k e t 23 These banks tend to be small, with an average deposit size of $17 million. They operate in 1635 of the 2466 counties and in 194 of the 281 SMSAs in the contiguous 48 states. 24 Inclusion of banks owned by bank holding companies would probably raise important methodological difficulties associated with varying degrees of centralization and the allocation of overhead costs. See Frieder (1980) and Rhoades (1983). 25 Income statement and balance-sheet items are from Reports of Condition and Income and Dividend Reports that each bank is required to file with the appropriate bank regulator. The rate of return on assets is used rather than the rate of return on equity because market analysts regard the return on assets as the best indicator of a bank's profitability. See, for example, Business Week (Apr. 18, 1977), p. 97 and Business Week (Apr. 9, 1984), p. 83. The bank regulators, who are concerned about bank safety and soundness, also place considerable emphasis on return on assets. This is also the standard measure of profit rates employed in most research focusing on banking. Another reason that researchers have used a return on the bank's total resources (assets) rather than equity capital is that there is so much discretion involved in dividing capital between debt and equity, whereas total resources (assets) are a common denominator across firms. 26 Market rank is investigated as an alternative to market share.

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Stephen A. Rhoades concentration. However, because the market concentration variable is almost certain to be highly correlated with the firm market share variable, 27 it is not included as an independent variable in the analysis. Instead, each of the 6500 banks is assigned to a concentration decile (0-10%, 11-20% . . . . 91-100%) according to the concentration ratio in the market in which it operates, and tests of the market share-rate of return relationship are conducted for each decile; thereby, concentration is effectively held constant. The branching laws in a state influence the ease or difficulty of entry into the markets in the state. Therefore, a set of dummy variables is used to distinguish between banks located in statewide branching, limited branching, and unit branching states. In addition to the market-related variables, several firm-specific variables are relevant to this analysis. 28 The most recent evidence on economies of scale in banking indicates that there are modest economies, so it is desirable to control for bank size. By including size, we can interpret the market-share variable knowing that any efficiency associated with size is held constant. Bank size is measured by the annual average (1969-1978) of total bank assets. A binary variable is included in the analysis to distinguish between banks that are members of the Federal Reserve System and those that are not, because the higher reserve requirements imposed on member banks should result in lower profits. On the liability side of the balance sheet, a particularly important factor influencing interest costs, and thus profits, is the amount of time deposits relative to savings deposits, because time deposits are considerably more expensive than the standard savings deposits. Therefore, the annual average (19691978) time deposits:time and savings deposits ratio is included as an independent variable. In addition, the average capital:asset ratio is included as an indicator of a bank's risk preference--with a low ratio indicating a relatively risky position. On the asset side of the balance sheet, the proportion of the portfolio accounted for by loans is of particular interest because loans are a major asset category and earn considerably more than the primary alternative asset--government securities. To account for this portfolio effect, the average annual (1969-1978) loan:asset ratio is included as a control variable in the analysis, along with loans to individuals as a percentage of total loans. Market growth is also included in the analysis to account for the fact that rapid growth in a market during a relatively short period is likely to yield relatively high profits to established firms until capacity is expanded commensurate with the increased demand. Finally, a binary variable is used to distinguish between independent unit banks and those that are owned by a one-bank holding company, in the event that the organizational form selected by the owners is indicative of a particular set of preferences that may affect rates of return. There is evidence that there are tax advantages for the one-bank holding company.

IV. Tests and Results

Preliminary Analysis It is useful as a first step in the analysis to see whether or not, for this sample, traditional monopoly power is likely to be a source of high profits for the high27 This is expected a priori and, in addition, earlier studies experienced this problem. 28 Unfortunately, data on advertising expenditures are not generally available. However, data for the sample of banks that participate in the voluntary Functional Cost Analysis Program suggest that advertising is not especially important. Advertising expenditures are equal to about 0.1% of total a s s e t s and about 1.5% of total operating expenses.

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Market Share as a Source of Market Power Table 1. Rates of Return, Market Shares, and Assets by Concentration Decile for 6492 Banks

CR3 Decile (~)

Number of

Average Rate of Return

Average Market Share

Range of Market Shares

Average Bank Asset Size

Banks°

(%)

(~)

(%)

(raft. $)

30.0-39.9 40.0-49.9 50.0-59.9 60.0-69.9 70.0-79.9 80.0-89.9 90.0-100.0

290 707 875 1051 969 1027 1573

0.88 0.87 0.93 0.95 0.99 1.01 1.08

3.1 2.7 6.4 8.3 12.3 15.4 42.7

0.03-18.6 0.02-28.5 0.08-32.6 0.03-42.7 0.06-82.0 0.04-63.1 0.18-100.0

23.5 56.0 19.6 15.8 15.1 15.0 16.6

Eight oftbe banks in the initial sample were in markets with a three-bank, deposit..coneentrationratio of less than 30%. Because of the small number, these banks were dropped from the sample.

market-share firms. If it is, then it will be important to exclude, as completely as possible, the effect of traditional monopoly power on rates of return in seeking to determine whether or not market share is a source of market power as reflected in relatively high rates of return. The data in Table 1 are intended to shed some light on this issue. From Table 1, it is apparent that there are a substantial number of banks in each concentration decile above 30%, with 290 being the smallest number. It is also apparent that the average rate of return of banks increases steadily as the concentration decile in which they are classified increases. This particular observation inspires at least some confidence in the validity of the data and sample for analytical purposes inasmuch as there are strong theoretical arguments and considerable empirical support for expecting a direct relationship between concentration and rates of return.,Inspection of the column showing the average market share of banks in each concentration decile istrongly confirms the suspicion that, on average, firms in high-concentration markets will have high market shares relative to the firms in low-concentration markets. Thus, for example, the average market share ranges from a low of 2.7% in the 40.0-49.9 decile to a high of 42.7% in the 90.0-100.0 decile. Consequently, it will be necessary to analyze the market share-market power (rate of return) .relationship within deciles. In view of the desirability of doing this, it is fortunate that, as shown in Table 1, there is a wide range of firm market shares within each decile, which facilitates testing. Finally, the last column in Table 1, which shows the average size of banks in each decile, suggests that size differences do not vary systematically with the level of concentration. 29 Because the data in Table 1 suggest that market structure (concentration) may indeed be the reason for observing high rates of return among banks with high market shares, it is necessary to examine rate-of-return differences, based on market shares, within deciles, so that the concentration factor is essentially held constant. This is done in Table 2, where the rates of return for the largest and smallest 10% of the banks in each concentration decile are presented. According to these data, the highmarket-share group has a higher rate of return than the low-share group in four out of the seven deciles (30.0-39.9, 40.0-49.9, 60.0-69.9, and 90.0-100.0). In three of the four instances the differences are statistically significant. In contrast, in the three 29The relatively large size of banks in the 40.0-49.9 decile arises from the fact that a substantial number of large unit banks from Chicago are in this decile.

354

Stephen A. Rhoades Table 2. Rates of Return and Bank Size for the High Market-Share and Low Market-Share Firms in Each Concentration Decile

CR3 Decile

Number of

Average Rate of Return

Average Asset Size

(%)

Banks

(%)

(mil. $)

29 29

0.90 0.83

42.6 7.4

71 71

0.87 0.72

129.6 17.5

88 88

0.92 0.94

34.0 10.1

105 105

1.06 0.81

33.0 13.4

97 97

1.00 1.03

34.4 10.3

103 103

1.00 1.02

34.7 8.6

157 157

1.18 1.04

14.4 5.9

30.0-39.9

High Share Group ~ Low Share Group ~ 40.0--49.9

High Share Group Low Share Group 50.0-59.9

High Share Group Low Share Group 60.0-69.9

High Share Group Low Share Group 70.0-79.9

High Share Group Low Share Group 80.0-89.9

High Share Group Low Share Group 90.0-100.0

High Share Group Low Share Group

° Includes that 10% of banks with the highest marketshare in a concentration decile. b Includes that 10% of banks with the lowest marketshare in a concentrationdecile.

deciles (50.0-59.9, 7 0 . 0 - 7 9 . 9 , and 80.0-89.9) in which the low-share group exhibits a higher rate of return than does the high-share group, the differences are extremely small. These data do indeed suggest that a high market share tends to result in a high rate of return independent of the level of concentration. Because, however, the last column in Table 2 shows that the high-market-share firms are substantially larger than the low-share firms (in every concentration decile), then the high rates of return observed among high-market-share firms may simply be due to scale economies rather than to market share per se. Inclusion of a firm-size variable in the multiple regression analysis is thus very important. As noted earlier, the market rank of a firm, rather than share, may be the key source of market power. Therefore, the average rates of return of the largest and smallest 10% of the banks based on rank within each concentration decile are presented in Table 3. The findings are similar to those based on market share as shown in Table 2. Specifically, the high-rank group shows a higher rate of return than the low-rank group in five of the seven concentration deciles, and in four of the deciles the difference is statistically significant. The low-rank group has a slightly higher rate of return in only two decries. The similarity of the tabulations in Tables 2 and 3 does not point to either market share or rank as the key factor in allowing firms to earn a relatively high rate of return.

Market Share as a Source of Market Power

355

Table 3. Rates of Return for the High-Rank and Low-Rank Finns in Each Concentration Decile CR3 Decile (%)

Number of Banks

Average Rate of Return (%)

30.0-39.9 High Rank Group a Low Rank Group b

29 29

0.91 0.77

40.0-49.9 High Rank Group Low Rank Group

71 71

0.86 0.71

50.0-59.9 High Rank Group Low Rank Group

88 88

0.94 0.96

60.0-69.9 High Rank Group Low Rank Group

105 105

1.04 0.76

70.0-79.9 High Rank Group Low Rank Group

97 97

1.00 1.03

80.0-89.9 High Rank Group Low Rank Group

103 103

1.02 1.00

90.0-100.0 High Rank Group Low Rank Group

157 157

1.14 1.02

° Includesthat 10% of banks with the highestrank in a concentrationdocile. b Includes that 10% of banks with the lowest rank in a concentrationdocile.

Regression Analysis The regression analysis is based on the following model, which is used for tests on the entire sample of 6492 banks and for the banks within each concentration decile. R O R = f ( M P i , TA, TL/TA, LTI/TL, TCap/TA, T / T + S , OBHC, M,

U,

L, MG)

where ROR

= average rate of return on assets (1969-1978);

MPl

=

MP2

= market power: rank;

TA

= total asset size;

TL/TA

= total loans/total assets;

LTI/TL

= loans to individual/total loans;

market power: share;

TCap/TA = total capital/total assets; T/T + S

= time deposits/time and savings deposits;

OBHC

=

1, if bank is owned by a one-bank holding company, OBHC = 0, otherwise;

356

Stephen A. Rhoades

M

=

1, if Federal Reserve member bank, M = 0, otherwise;

U

=

1, i f unit b a n k i n g p r e v a i l s , U = 0, otherwise;

L

=

1, if limited branching prevails, L = 0, otherwise; and

MG

= market growth in terms o f total deposits (1969-1978).

R e g r e s s i o n results focusing on the relationship between m a r k e t share (and rank) and rate o f return are shown in Table 4. The first two equations are based on all 6492 sample banks, whereas the r e m a i n i n g 14 equations are based on the banks in a p a r t i c u l a r concentration decile. A test for rank as an alternative to m a r k e t share appears in one o f the two equations for each decile. Several general c o m m e n t s r e g a r d i n g the test results are warranted. 30 First, it is' interesting that the results are strongly consistent with the simple tabulations presented earlier. Second, the m o d e l p e r f o r m s r e a s o n a b l y well in at least two respects: for one, results for most v a r i a b l e s r e m a i n stable across the various samples tested. In addition, the R2s are r e l a t i v e l y high for a cross-sectional analysis o f this type. Third, the m a r k e t - r a n k v a r i a b l e y i e l d s results that are v e r y similar to those for the m a r k e t - s h a r e variable. This does not suggest, as argued earlier, that rank rather than m a r k e t share is the key to any m a r k e t p o w e r that m a y be associated with a leading position in a market. L o o k i n g first at the results in connection with the m a r k e t share variable, we can see that they support the hypothesis that m a r k e t share is directly related to the rate o f return earned. The m a r k e t - s h a r e variable is statistically significant at the 1% level in the equation based on all banks. But more importantly, it is statistically significant, g e n e r a l l y at the 1% level, in equations for each o f the c o n c e n t r a t i o n deciles with the single exception o f the equation for the 3 0 . 0 - 3 9 . 9 % concentration decile. 3~ This indicates that even when concentration is essentially held constant, those firms with high m a r k e t share tend to earn a higher rate o f return than firms with l o w e r m a r k e t shares. 32 It is notable that the coefficient on the m a r k e t share variable gives no indication o f v a r y i n g systematically from one concentration decile to the next, g i v i n g further support to the argument that the influence o f m a r k e t share on profits is independent o f concentration. It has been argued in this p a p e r that " i n h e r e n t p r o d u c t 30 Because Of the possibility of heteroskedasticity in connection with the size variable, the GoldfeldQuandt test was conducted. The test indicated a statistically significant but quantitatively small problem with heteroskedasticity. That is, the F (2155, 2155) ratio was only 1.1, but because of the very large number of observations this was statistically significant. The Glejser technique was subsequently used to test for specific forms of heteroskedasticity. However, none of the different corrections for heteroskedasticity appreciably changed the coefficients or t statistics. 311~is finding is notably different from that of Dalton and Levin (1977) in that they found that the market share-profitability relationship holds up in the relatively high-concentration industries but not in the relatively low-concentration industries. This leads them to conclude that market share has an impact only in cases in which there is market power in the traditional sense; i.e., arising from overall market structure. In contrast, the results of this analysis suggest that market share yields market power (high rates of return) irrespective of the level of concentration. In other words, relatively high market shares exist in any market, whether high or low concentration, and are a source of market power. 32 An unidentified referee proposed that the high market shares may be a result of the high profits. I believe, however, that the inherent product differentiation idea suggested in this paper provides a reasonable a priori justification for expecting market share to be the source of high profits. In addition, the concept of "strategic groups" associated with the recent works of Caves and Porter (1977), Newman (1979), and Oster (1982) also supports the argument that high market share will lead to high profits. Groups of firms within an industry occupy different niches, and each group may offer a product somewhat differentiated from others. In short, it appears that there is a reasonable theoretical justification for expecting high market shares to lead to high profitability.

Market Share as a Source of Market P o w e r

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358

Stephen A. Rhoades differentiation" may be a source of market power that is distinct from market power associated with market structure. Although these results are consistent with that argument, it is, of course, not possible to prove that "inherent product differentiation" is primarily or even partially responsible for this outcome, based on the available data. The concept does, however, provide a reasonable explanation that appears to be consistent with observed firm and consumer behavior. 33 Results for the firm-rank variable, used as an alternative to market share, are generally consistent with results for the market-share variable. Thus, the rank variable is statistically significant, with the expected sign in the equation based on all banks as well as in equations for five out of the seven concentration deciles. 34 Although results for the rank variable confirm the finding of the market-share variable--a relatively significant firm in a market tends to earn a higher rate of return than less significant firms--there is no indication that rank rather than market share is the basis for the high rates of return. 35 Results for control variables used in the analysis will be summarized very briefly. Results in connection with the total-asset-size variable are somewhat inconsistent: it is not statistically significant in the equation for all of the banks and for several equations within concentration deciles. Furthermore, although the size variable is statistically significant in six of the 16 equations, it carries a negative sign in one of these equations. 36 These seemingly perverse results probably should not be surprising in view of the findings of other studies. 37 Results for the total loans:total assets ratio are generally statistically significant at the 1% level, but there is an unexpected negative sign. Thus, although loans yield a higher return than other bank assets, it may be that the banks that pursue loans most aggressively tend also to seek funds aggressively, thereby resorting to high-cost purchased money (e.g., federal funds) rather than relying on relatively low-cost savings deposits. Results for the loans to individuals/total loans variable are similar but weaker. The capital:assets ratio and the ratio of time deposits:time and savings deposits are generally statistically significant, but the coefficients on the capital:assets ratio 33 Inspection of the simple correlation matrix provides no indication of a collinearity p(oblem. 34 Tests, using binary variables, were conducted to determine whether only the number-one ranked firm, the first- and second-i'anked, or the first-through-third ranked firms enjoyed relatively high rates of return. The results of tests for each of these three sets of high-ranked firms were essentially the same. Additional tests were conducted to compare rates of return among firms ranked one, firms ranked two, and so on through firms ranked ten. There was no indication that there is a particular rank above which firms tend to enjoy high rates of return and below which they do not. The more highly ranked firms were generally the more profitable. 35 There is an important difference between the results reported here and those reported by Porter (1977). It was found here that market leaders generally tend to be the most profitable, whereas Porter found that in many industries the leading firms are not the most profitable. It may be that the results of this analysis, based on relatively homogeneous firms and markets, reflect general performance tendencies, whereas Porter's findings, being based on highly diverse firms and markets, reflect other factors that he has not been able to account for in his tests. 36 Tests using the log-form for total assets yield essentially the same results. 37 Shepherd (1972), in his analysis of the market share-rate of return relationship, found that size generally had a negative affect on rates of return, a fact that he attributes to X inefficiency. Similar findings in a concentration-profitability study of 334 German firms were reported by Newman et al. (1979). They also attributed the results to X inefficiency. And a study of the market share-rate of return relationship for 32 leading firms in different Japanese industries found that market share affected rates of return but size had no effect (Nakao 1979). Dalton and Levin (1977) also found no size-rate of return relationship.

Market Share as a Source of Market Power

359

carry an unexpected positive sign. It may be that, particularly in a sample of small banks, the relative less-profitable banks simply have difficulty in obtaining external capital. The one-bank holding-company variable and the Federal Reserve membernonmember variable are both binary variables. Both carry expected signs and are statistically significant in about one-half of the 16 equations. Results indicate that banks owned by one-bank holding companies are relatively profitable and Federal Reserve member banks are relatively unprofitable. The unit-banking and limited-branching variables are binary variables intended to reflect the higher barriers to entry in nonstatewide branching states. The results are very weak but they are consistent with expectations in six of the equations for the limited-branching variable. Finally, the market growth variable is statistically significant in most of the equations and the positive sign suggests that established firms in a market benefit from rapid market growth at least in the short run. 38

V. Summary and Conclusions This paper has focused on the banking industry to investigate the hypothesis that firm market share is a source of market power and, thus, high rates of return. It is proposed that elements of consumer and business behavior, along with some strands of economic theory, suggest the argument that market power arises from "inherent product differentiation" of market leaders--they are perceived by consumers as being better simply by virtue of their position in a market. The analysis is based on 6492 banks that are assigned to concentration deciles for analysis. Because these banks are relatively small, are undiversified, have similar production functions, do not rely significantly on explicit product differentiation strategies, and because tests are conducted for large groups of banks with essentially the same concentration ratios, many problems of earlier studies are overcome. Specifically, results of tests for a relationship between market share and rates of return are relatively unlikely to reflect concentration, efficiency, and explicit product-differentiation differences. Thus, because of the relative homogeneity of the firms under investigation in this analysis, we do not have the problem that Gale (1972) experienced--that of avoiding public policy suggestions due to the difficulty of separating the effect of market power on profits from that of efficiency. Furthermore, at least partially because of the statistical problem of controlling for concentration in studying the effect of market share on profits, Shepherd (1972), Gale (1972), and Dalton and Levin (1977) concluded that the effect of market share on profits is associated with the level of concentration. This analysis has basically been able to avoid concentration and efficiency as factors, and the results of the analysis indicate that market share per se is a source of market power (high rates of return) regardless of the concentration level. These results do n o t support the Demsetz (1973) argument that the profits of leading firms are due to greater efficiency rather than to some form of market power. They also do not support the finding, presented by Gale (1972), that the market-share effect is greater in highly concentrated markets. As a consequence, the implications for theory and policy are somewhat clearer than in earlier studies. 38 A distinction between short- and long-run market-growth effects, along with some evidence, has been presented in Dalton and Rhoades (1974).

360

Stephen A. Rhoades Because the implications of a market share-market p o w e r relationship were discussed near the beginning of the paper, only a comment seems necessary here. With respect to theory, it appears as though the basic market models should explicitly account for the existence of two (or multiple) prices in a market, perhaps in a manner similar to that suggested in the Appendix. With respect to research, these findings, along with the work on strategic groups, raise the possibility that markets may generally be defined too broadly. They also lead one to ask such questions as, What is the value of a high market share (is it reflected in merger premiums)? How did the high-market-share firm achieve its position? And do consumers perceive highmarket-share firms to be superior? With respect to policy, it appears that the antitrust authorities and banking authorities should devote attention to the market share of firms to be acquired, regardless of market concentration. These findings provide a basis for proposing that firms entering new markets by acquisitions would be most likely to have a procompetitive effect if they could not acquire a unique position as a market leader but instead must enter and strive to achieve such a position. The reader is left to draw further policy implications. Appendix Figure A1 illustrates the kind of simple static model that is needed to account for market share as a source of market power resulting from "inherent product

Price O4

D3

D2

D~

I I I ! I ! ! op

Figure A1.

II

I I ! ! ! I oL

Market pricing with inherent product differentiation.

Output

Market Share as a Source of Market Power

361

differentiation." The kinks in the demand curves reflect the fact, accounted for by Sweezy (1939) and Hall and Hitch (1939), that prices in markets that are not purely competitive tend to be more stable than short-run changes in supply and demand would suggest. The kinks also reflect the mutual interdependence of firms in monopolistic competitive markets as emphasized by Chamberlin (1965). In addition, however, Figure A1 accounts for the existence of different prices in a market. Thus, Pp and Op are the price and output of the peripheral firm(s), whereas PL and OL associated with D4 are the price and output levels for the market leader(s). What is not certain is whether two demand curves exist--one for the market leader(s) and one for the peripheral firm(s)--or whether there is a continuum of demand curves between D~ and D4, or a few curves, such as DI, DE, D3, and D4. The slopes of the demand curves reflect the outcome of movements away from equilibrium prices and outputs at the kinks, resulting from the actions and reactions of firms in the market. If, for example, the market leader (facing D4) should initiate a price increase, it will lose market share unless the other firms follow. If the others do follow, due to tradition or fear of reprisal, a new set of prices will be established with lower industry output. If they do not follow, because of the substantial drop in output and market share associated with the price increase, the market leader can be expected to cut its price to regain its market share and the original equilibrium level of price and output will be restored. If one of the market leaders (facing, say, DE) should initiate a price increase, its market share will drop quite sharply (more sharply than for the leader facing D4) , as customers switch rather quickly to what is perceived as the " b e t t e r " product of a higher ranked leader. Of course, if the other firms follow, a new equilibrium set of prices at lower industry output will be established; but if they do not follow the price increase quickly, the firm facing D 2 will be forced to drop back into line with the leaders. Comparing the actions of the market leader (facing D4) and the firm facing D2, it can be expected that the market leader, because of the smaller loss in market share that it experiences as the result of cutting prices, would have more time to see whether or not its price increase will be followed by others. This is consistent with the fact that price increases tend to be initiated by market leaders and only periodically. The relatively sharp downward slope of the demand curves to the right of the kinks reflects the idea that a price cut by any of the firms is likely to elicit a quick reaction from the other members of the market to protect their market shares. Initially, a price cut for an individual firm may appear to be attractive if it perceives its demand curve to the right of the kink as being as relatively elastic as is the demand curve to the left of the kink. But, of course, the reaction of its rivals to a price cut is such that little or nothing is gained from price cutting. Thus, assuming that firms in a market learn from experience, they will have no incentive to cut prices. This explains the downward rigidity of prices that is frequently observed in practice. The key elements in this diagram are, of course, 1) the existence of several prices associated with different market shares to reflect "inherent product differentiation." This notion is suggested by empirical evidence of a direct relationship between rate of return and market share in a market, and 2) the different slopes of the demand curves to the left of the kink faced by firms with different market shares. This construction is suggested by the fact that one of the market leaders, if not the leader, typically initiates price increases, because the leaders will lose relatively little market share. This, combined with greater financial resources, also provides them with more time to see whether or not their price increases will stick.

Stephen A. Rhoades

362

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Market Share as a Source of Market Power

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Salop, S. May 1976. Information and monopolistic competition. American Economic Review 66:241. Scherer, F. M. 1980. Industrial Market Structure and Economic Performance, 2nd ed. Chicago: Rand McNally. Scitovsky, T. May 1950. Ignorance as a source of oligopoly power. American Economic Review 40:51. Shepherd, W. G. Feb. 1972. The elements of market structure. Review o f Economics and Statistics 54:25-37. Smallwood, D. E., and Conlisk, J. Feb. 1979. Product quality in markets where consumers are poorly informed. Quarterly Journal o f Economics 93:5-7. Sweezy, P. Aug. 1939. Demand under conditions of oligopoly. Journal o f Political Economy 46:568-573. U.S. vs. Connecticut National Bank. 1974. U.S. vs. ,~farine Bancorporation. 1974. Woo, C. Y., and Cooper, A. C. Nov./Dec. 1982. The surprising case for low market share. Harvard Business Review 60:106-113.