By
Borsgade
In this research article, Michael Mauboussin analyzes the concept of market share. In essence, Michael argues that market share is an important but insufficient gauge of competitive advantage.
Stability, concentration, markups, and intangibles provide a more complete picture of the ability to create and sustain excess returns. Industry and company-specific analysis is essential.
Case studies of autos, airlines, internet search, and word processing software illustrate how market share, concentration, stability, and markups evolve differently across industry life cycles and competitive dynamics.
Here are the key takeaways from the article:
Market power measures the degree to which a firm can set its price above its marginal cost. A firm with market power creates value by earning a return above its cost of capital. An expansive view of value creation goes from the customer’s willingness to pay to a supplier’s willingness to sell.
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