Your intuition is correct, but unfortunately, it doesn't actually work that way, because on a per-employee basis, big business is ~4x more efficient.
That is, for every $1 in revenue an SMB brings in, big business brings in $4. (These numbers are averages, but the basic relationship holds across industries.)
I personally do not see how SMBs can compete when they are paying 4x more for labor.
The reason big business is so efficient is IT investment, and the problem with IT investment is that you need to be big in order to really take advantage of it. The amount of improvement SMBs get for a proportional amount of investment is low. You have to spend a lot to get anything, really, and SMBs just can't afford that.
So, to recap: big business profits stay high because SMBs actually can't force prices downward, due to the huge imbalance in labor costs between SMBs and big business.
If we could get the same IT advantage to SMBs at a cost that is proportional to their revenue, then the dynamic you expect to be occurring would, in fact, happen.
That is, for every $1 in revenue an SMB brings in, big business brings in $4. (These numbers are averages, but the basic relationship holds across industries.)
I personally do not see how SMBs can compete when they are paying 4x more for labor.
The reason big business is so efficient is IT investment, and the problem with IT investment is that you need to be big in order to really take advantage of it. The amount of improvement SMBs get for a proportional amount of investment is low. You have to spend a lot to get anything, really, and SMBs just can't afford that.
So, to recap: big business profits stay high because SMBs actually can't force prices downward, due to the huge imbalance in labor costs between SMBs and big business.
If we could get the same IT advantage to SMBs at a cost that is proportional to their revenue, then the dynamic you expect to be occurring would, in fact, happen.