Thursday, October 25, 2018

How Do Firms Build Market Share?

Doireann Fitzgerald, Federal Reserve Banks - Federal Reserve Bank of Minneapolis and Anthony Priolo, University of Minnesota - Twin Cities - Department of Economics ask How Do Firms Build Market Share?

ABSTRACT: The question of how firms build market share matters for firm dynamics, business cycles, international trade, and industrial organization. Using Nielsen Retail Scanner data for the United States, we document that in the consumer food industry, brands experience substantial growth in market share in the first four years after successful entry into a regional market. However, markups are flat with respect to brand tenure. This finding is at odds with a large literature on customer markets which argues that firms acquire customers by temporarily offering low markups, and later raise markups once customers are locked in. However, it is consistent with a literature which emphasizes the importance of marketing and advertising activities for building market share.

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