Cost competition: new evidence on an old issue

The relation between cost changes and market share changes is examined for five size ranked cohorts of firms in US manufacturing industries. Cost reductions are expected to yield market share increases via associated price reductions. It was found that this is indeed the case, although the realation is not strong. A 10% cost reduction produces roughly a 2% market share increase, an estimated which for various reason is most likely a lower bound. Cost reductions are also associated with both price reductions and price-cost margin increases.