By introducing the change of market share of state-owned enterprises as an exogenous impact on the private enterprise market, this paper analyzes and tests the influence of the market scale change on the distribution of intra-group productivity under equilibrium conditions from theoretical and empirical perspectives. This research has two contributions to the literature: First, it provides empirical tests for the general equilibrium of heterogeneous firm models. Second, it provides a different perspective to understand the relationship between state-owned enterprises and private enterprises.　　Our research finds that: (1) Increasing market share of state-owned enterprises will increase the dispersion of productivity distribution of private enterprises and reduce the efficiency of resource allocation within the group of private enterprises. (2) Increasing market share of state-owned enterprises will raise the level of profit margin of surviving private enterprises, making inefficient private enterprises not eliminated by competition. Theoretical analysis and further tests show that the mechanism of the above results lies in the reduction of the market size, the reduction of the number of enterprises in equilibrium, the reduction of fixed costs and the improvement of profit margin. The conclusion of the study provides a useful perspective for understanding the interaction between state-owned enterprises and private enterprises and enhancing the productivity of the industry.　　When we observe that private enterprises in the industry have a better performance level, we cannot deny that there is no mismatch of resources within private enterprises. In fact, this kind of crowding-out of the market scale of private enterprises by state-owned enterprises formed by policies and institutional advantages will deepen the mismatch of inter-group resources between the two types of enterprises and the mismatch of intra-group resources within private enterprises. The latter has not been noticed in the research literature. An important reason is that the performance premium of private enterprises will cover up this feature.　　This theoretical transmission mechanism is applicable not only to the analysis of the economic impact of the interaction between state-owned enterprises and private enterprises defined in this paper (i.e. " crowding out” market share), but also to the analysis of the impact of exogenous changes in the market size on the distribution of enterprise productivity in the industry.