Rejecting Market Share

Thesis Series #3

Apple consistently achieves 25% market share of the smartphone market.

But it’s profit share? Well, that’s a different story:

78%.

That’s right. Apple accounts for 78% of all profits generated by the smartphone industry, despite having only 25% of sales volume.

This single statistic made me think about market dominance in a completely different way.

The first paper in my PhD thesis sought to define market dominance and identify companies that met that definition.

I rejected the traditional measures of dominance, such as sales volume or revenue. This is because, over the long term, profit drives value. And value is what executive teams are rewarded for creating (e.g. through share options schemes).

With this idea in mind, I defined market dominance as:

“A company with a dominant share of its industry’s profit pool.”

This definition represents the ultimate achievement in business performance.

The next task was to create a measure for dominance:

At what profit share level does a company need to have to be considered ‘dominant’?

It’s a lot harder than it seems. The measure needs to be empirically grounded and applicable to any market.

After extensive research, I identified a key measure used in antitrust cases and grounded in antitrust law. This measure produces a threshold for technical dominance that I applied to 81 industry profit pools.

It’s fascinating what it produced.

But it will take an entire post to explain it, so I will do that tomorrow.

Follow me, Dr. Ian Hallett, so it shows up in your feed.

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This post is part of a series of notes I am writing about my PhD thesis, to share how I approached it and what I learned.