An Examination of the Relationship Between Firm Size and Market Power in Nigeria
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Background of the Study
Firm size is often considered a critical determinant of market power, with larger firms typically enjoying advantages in economies of scale, bargaining power, and resource availability. In Nigeria, industries such as oil and gas, telecommunications, and manufacturing display significant disparities in firm size, which in turn influence competitive dynamics (Ibrahim, 2024). Large firms are often better positioned to influence market outcomes, set prices, and deter new entrants. However, smaller firms can also carve out niche markets through specialization and agility. Recent studies indicate that while market power tends to correlate with firm size, the relationship is complex and mediated by factors such as technological innovation, managerial competence, and regulatory environment (Adeniyi, 2023). This study investigates the interplay between firm size and market power in Nigeria by analyzing empirical data across different sectors. It explores how size advantages translate into competitive benefits and whether there are diminishing returns to scale in certain industries. Additionally, the research examines the role of government policies in leveling the playing field between large incumbents and smaller, innovative firms.
Statement of the Problem
Although larger firms are generally assumed to possess greater market power, empirical evidence in Nigeria presents a more nuanced picture. Some large firms struggle with bureaucratic inefficiencies and complacency, while smaller firms exhibit agility and innovation that allow them to capture substantial market niches (Chinwe, 2023). This inconsistency raises questions about the straightforward relationship between firm size and market power. Moreover, external factors such as regulatory intervention and market segmentation further complicate this relationship. The lack of a clear understanding of how firm size translates into competitive advantage in Nigeria’s diverse industrial landscape hinders the development of targeted policies to promote fair competition. This study aims to explore the relationship between firm size and market power, identify the factors that mediate this relationship, and provide insights into how both large and small firms can optimize their competitive strategies.
Objectives of the Study:
• To examine the correlation between firm size and market power in Nigeria.
• To identify mediating factors that influence this relationship.
• To propose strategies for firms of different sizes to enhance their competitive positions.
Research Questions:
• How does firm size relate to market power in Nigerian industries?
• What factors mediate the relationship between size and competitive advantage?
• Which strategies can help both large and small firms optimize their market power?
Research Hypotheses:
• H1: Larger firm size is positively correlated with greater market power.
• H2: Managerial efficiency and innovation mediate the size–power relationship.
• H3: Strategic adjustments can enhance market power regardless of firm size.
Scope and Limitations of the Study:
The study focuses on selected sectors with significant size disparities. Limitations include the variability of firm performance metrics and challenges in controlling for industry-specific factors.
Definitions of Terms:
• Firm Size: The scale of a company measured by assets, revenue, or employee count.
• Market Power: The ability of a firm to influence market prices and conditions.
• Mediating Factors: Variables that influence the relationship between firm size and market power.
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