Wednesday, December 26, 2007

The Myth of Market Share

According to the above article, corporations that focus on market share (that is, trying to dominate the competition) end up much less profitable than those corporations that focus on profit without regard to market share. Companies that pursue market share as their ultimate goal often end up with pyrrhic victories, if they win at all. Companies that ignore the competition and focus on profit can be very successful and provide the greatest return on investment to shareholders, even from the number two (or three or fifteen) position.

This has always seemed obvious to me, but it is apparently a new concept in US corporations (compared with Japan, where this is the standard practice.)

As one respondent said, American Airlines is the biggest. Southwest is the most profitable. Which would you rather own shares of?