Firm scale, market share, and total factor productivity: Novel evidence from China's iron and steel firms

Abstract

Based on micro-data provided by the China Industrial Enterprises Database, this paper examines the mechanism through which the expansion of China's iron and steel firms affects total factor productivity via market share. The novel findings are as follows: (i) The "scale competitive advantage" formed by iron and steel firms expanding their scale to gain market share is not sustainable. "Making it bigger first" does not necessarily facilitate "making it stronger". (ii) During the institutional transition, administrative intervention is a crucial factor for local governments to help local firms gain market share. This factor significantly alters the nonlinear path through which expansion affects total factor productivity via market share, causing total factor productivity to decline earlier.