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Increasing Returns to Scale, Dynamics of Industrial Structure and Size Distribution of Firms

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  • Ying Fan
  • Menghui Li
  • Zengru Di
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    Abstract

    A model is presented of the market dynamics to emphasis the effects of increasing returns to scale, including the description of the born and death of the adaptive producers. The evolution of market structure and its behavior with the technological shocks are discussed. Its dynamics is in good agreement with some empirical stylized facts of industrial evolution. Together with the diversities of demand and adaptive growth strategies of firms, the generalized model has reproduced the power-law distribution of firm size. Three factors mainly determine the competitive dynamics and the skewed size distributions of firms: 1. Self-reinforcing mechanism; 2. Adaptive firm grows strategies; 3. Demand diversities or widespread heterogeneity in the technological capabilities of different firms. Key words: Econophysics, Increasing returns, Industry dynamics, Size distribution of firms

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    Paper provided by arXiv.org in its series Papers with number cond-mat/0407383.

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    Date of creation: Jul 2004
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    Handle: RePEc:arx:papers:cond-mat/0407383

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    1. S.G. Winter & Y.M. Kaniovski & G. Dosi, 1997. "A Baseline Model of Industry Evolution," Working Papers, International Institute for Applied Systems Analysis ir97013, International Institute for Applied Systems Analysis.
    2. Peretto, Pietro F., 1996. "Firm Size, Rivalry and the Extent of the Market in Endogenous Technological Change," Working Papers, Duke University, Department of Economics 96-07, Duke University, Department of Economics.
    3. Fujiwara, Yoshi & Di Guilmi, Corrado & Aoyama, Hideaki & Gallegati, Mauro & Souma, Wataru, 2004. "Do Pareto–Zipf and Gibrat laws hold true? An analysis with European firms," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 335(1), pages 197-216.
    4. Peretto, Pietro F., 1995. "Cost Reduction, Entry, and the Dynamics of Market Structureand Economic Growth," Working Papers, Duke University, Department of Economics 95-48, Duke University, Department of Economics.
    5. Robert Axtell, 1999. "The Emergence of Firms in a Population of Agents," Working Papers, Santa Fe Institute 99-03-019, Santa Fe Institute.
    6. Barr, Jason & Saraceno, Francesco, 2002. "A computational theory of the firm," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 49(3), pages 345-361, November.
    7. Kwasnicki, Witold & Kwasnicka, Halina, 1992. "Market, innovation, competition: An evolutionary model of industrial dynamics," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 19(3), pages 343-368, December.
    8. Dosi, Giovanni & Nelson, Richard R, 1994. "An Introduction to Evolutionary Theories in Economics," Journal of Evolutionary Economics, Springer, Springer, vol. 4(3), pages 153-72, September.
    9. Fariba Hashemi, 2000. "An evolutionary model of the size distribution of firms," Journal of Evolutionary Economics, Springer, Springer, vol. 10(5), pages 507-521.
    10. Gaffeo, Edoardo & Gallegati, Mauro & Palestrini, Antonio, 2003. "On the size distribution of firms: additional evidence from the G7 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 324(1), pages 117-123.
    11. Wagener, F.O.O., 2003. "Structural analysis of optimal investment for firms with non-concave production," CeNDEF Working Papers 03-08, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    12. Baumol, William J & Panzar, John C & Willig, Robert D, 1983. "Contestable Markets: An Uprising in the Theory of Industry Structure: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 491-96, June.
    13. Ramsden, J.J. & Kiss-Haypál, Gy., 2000. "Company size distribution in different countries," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 277(1), pages 220-227.
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