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We present a model in a competitive market where traders choose between a small and a large firm to acquire costly private information, but they also obtain free public information by observing equilibrium share prices. Our major finding is the existence of a noisy rational expectation competitive equilibrium, in which there are more informed traders of the large firm than those of the small firm. As a result, share prices of the large firm are more informative than those of the small firm. Our empirical study supports the analytical results. By using a bivariate vector autoregressive regression, we are able to conduct a variance decomposition of share prices for different size portfolios. We find that prices of large-size portfolios are more informative because non-value-related price shocks are less important in driving price changes of large-size portfolios than in the case of small-size portfolios. [ABSTRACT FROM AUTHOR]

Serving the majorities market appears difficult for large companies, given all there is to be learned and the need to “begin from scratch”. For smaller companies focused on a market niche, the challenge posed may center in economies of scale they must reach to become profitable. The balance will favor those companies that manage, concurrently, to “bridge” the best of both scales. [ABSTRACT FROM AUTHOR]