The effect of number of competitors in SME markets

Prior studies presented conflicting findings on the effect of small and medium enterprises (SMEs) concentration on growth rate. A theoretical model of industrial organisation suggested that imperfect competition - having fewer competitors - yields a higher growth rate. This research explores this relationship theoretically and empirically as related to SMEs in Israel. Findings show that having few competitors has a positive significant effect on growth in the number of employees, however, unexpectedly the subsample of SMEs with no competitors did not present any growth advantage. We apply a classic microeconomic analysis and demonstrate the conditions that support this empirical result.