Firm Size, Innovation, and Market Share Instability: the Role of Negative Feedback and Idiosyncratic Events

An evolutionary model is built which uses structural and random factors to account for the emergence of market share instability and industry concentration. The structural factors are studied through the relationship between firm size and innovation (dynamic returns to scale) while the random factors are studied through the effect of shocks on this feedback relationship. We find that market share instability is the highest under the negative feedback regime, when the industry specific level of technological opportunity is intermediate, and when shocks are neither very large nor very small.

[1]  R. Nelson.  Recent Evolutionary Theorizing about Economic Change , 2005, Technology, Institutions, and Economic Growth.

[2]  G. Hamel.  Strategy Innovation and the Quest for Value , 1998 .

[3]  W. Arthur.  Positive feedbacks in the economy , 1990 .

[4]  J. Sutton.  Technology and Market Structure , 1998 .

[5]  Boyan Jovanovic,et al.  Competitive Diffusion , 1993, Journal of Political Economy.

[6]  C. F. Phillips.  Industrial Market Structure and Economic Performance , 1971 .

[7]  W. Arthur,et al.  INCREASING RETURNS AND LOCK-IN BY HISTORICAL EVENTS , 1989 .

[8]  D. Audretsch.  Innovation and Industry Evolution , 1995 .

[9]  Kim B. Clark,et al.  Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of , 1990 .

[10]  Boyan Jovanovic,et al.  The Life Cycle of a Competitive Industry , 1993, Journal of Political Economy.

[11]  J. Schumpeter,et al.  The Theory of Economic Development , 2017 .

[12]  Harald Gruber,et al.  Learning and Strategic Product Innovation: Theory and Evidence for the Semiconductor Industry , 1994 .

[13]  Almarin Phillips,et al.  Technology and Market Structure: A Study of the Aircraft Industry , 1971 .

[14]  John Metcalfe,et al.  Competition, Fisher's Principle and increasing returns in the selection process , 1994 .

[15]  Paul Geroski,et al.  INNOVATION, TECHNOLOGICAL OPPORTUNITY, AND MARKET STRUCTURE , 1990 .

[16]  Clayton M. Christensen.  The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail , 2013 .

[17]  Philip Mirowski.  The Probabilistic Counter-Revolution, or How Stochastic Concepts Came to Neoclassical Economic Theory , 1989 .

[18]  D. North.  Competing Technologies , Increasing Returns , and Lock-In by Historical Events , 1994 .

[19]  William S. Comanor,et al.  Market Structure, Product Differentiation, and Industrial Research , 1967 .

[20]  Peter Pashigian,et al.  Turnover of Firms As a Measure of Market Behavior , 1962 .

[21]  S. Winter,et al.  An evolutionary theory of economic change , 1983 .

[22]  J. Schumpeter.  Capitalism, Socialism and Democracy , 1943 .

[23]  M. Hannan,et al.  Structural Inertia and Organizational Change , 1984 .

[24]  Franco Malerba,et al.  The Dynamics and Evolution of Industries , 1996 .

[25]  Z. Ács,et al.  Innovation and Small Firms , 1990 .

[26]  H. A. Simon,et al.  Skew Distributions and the Size of Business Firms , 1977 .

[27]  Steven Klepper,et al.  The Evolution of New Industries and the Determinants of Market Structure , 1990 .

[28]  F. Scherer,et al.  Industrial Market Structure and Economic Performance. , 1971 .

[29]  Uriel G. Rothblum,et al.  Asymptotic behavior of market shares for a stochastic growth model , 1985 .

[30]  Wesley M. Cohen,et al.  Empirical studies of innovation and market structure , 1989 .

[31]  P. Krugman.  Increasing returns, monopolistic competition, and international trade , 1979 .

[32]  M. Tushman,et al.  Technological Discontinuities and Organizational Environments , 1986 .

[33]  P. David.  Clio and the Economics of QWERTY , 1985 .

[34]  C. Markides.  Strategic Innovation in Established Companies , 1998 .

[35]  Steven Klepper,et al.  Technological Extinctions of Industrial Firms: An Inquiry into Their Nature and Causes , 1997 .

[36]  Y. Chen.  [The change of serum alpha 1-antitrypsin level in patients with spontaneous pneumothorax]. , 1995, Zhonghua jie he he hu xi za zhi = Zhonghua jiehe he huxi zazhi = Chinese journal of tuberculosis and respiratory diseases.

[37]  S. Klepper.  Entry, Exit, Growth, and Innovation over the Product Life Cycle , 1996 .

[38]  K. Pavitt.  Sectoral Patterns of Technical Change : Towards a Taxonomy and a Theory : Research Policy , 1984 .

[39]  Mariana Mazzucato,et al.  A computational model of economies of scale and market share instability , 1998 .

[40]  A. Mukhopadhyay,et al.  Technological Progress and Change in Market Concentration in the U. S., 1963-77 , 1985 .

[41]  Luigi Marengo,et al.  Knowledge Distribution and Coordination in Organizations: On Some Social Aspects of the Exploitation vs Exploration Trade-off , 1993 .

[42]  Herbert A. Simon,et al.  The Size Distribution of Business Firms , 1958 .

[43]  Myopic Selection , 2002 .

[44]  Z. Ács,et al.  Innovation, Market Structure, and Firm Size , 1987 .

[45]  J. Sutton.  Gibrat's Legacy , 1996 .

[46]  Morton I. Kamien,et al.  Market Structure and Innovation: A Survey , 1975 .