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Does classical competition explain the statistical features of firm growth?

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  • Alfarano, Simone
  • Milakovic, Mishael

Abstract

We propose a statistical equilibrium model where the tendency for competition to equalize profit rates results in an exponential power (or Subbotin) distribution. The model supports and extends recent evidence on the Laplace distribution of firm growth rates.

Suggested Citation

  • Alfarano, Simone & Milakovic, Mishael, 2008. "Does classical competition explain the statistical features of firm growth?," Economics Letters, Elsevier, vol. 101(3), pages 272-274, December.
    • Handle: RePEc:eee:ecolet:v:101:y:2008:i:3:p:272-274
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    References listed on IDEAS

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    1. Bottazzi, Giulio & Dosi, Giovanni & Lippi, Marco & Pammolli, Fabio & Riccaboni, Massimo, 2001. "Innovation and corporate growth in the evolution of the drug industry," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1161-1187, July.
    2. Castaldi, Carolina & Milakovic, Mishael, 2007. "Turnover activity in wealth portfolios," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 537-552, July.
    3. S. V. Buldyrev & F. Pammolli & M. Riccaboni & K. Yamasaki & D.-F. Fu & K. Matia & H. E. Stanley, 2007. "A generalized preferential attachment model for business firms growth rates," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 57(2), pages 131-138, May.
    4. Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the distribution of firm growth rates," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 235-256, June.
    5. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    6. Bottazzi, Giulio & Secchi, Angelo, 2003. "Why are distributions of firm growth rates tent-shaped?," Economics Letters, Elsevier, vol. 80(3), pages 415-420, September.
    7. Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 489-512, April.
    8. repec:rje:randje:v:37:y:2006:2:p:235-256 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Oh, Ilfan, 2019. "Autonomy of profit rate distribution and its dynamics from firm size measures: A statistical equilibrium approach," BERG Working Paper Series 146, Bamberg University, Bamberg Economic Research Group.
    2. Eliazar, Iddo & Sokolov, Igor M., 2010. "Maximization of statistical heterogeneity: From Shannon’s entropy to Gini’s index," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(16), pages 3023-3038.
    3. Scharfenaker, Ellis & dos Santos, Paulo L., 2015. "The distribution and regulation of Tobin’s q," Economics Letters, Elsevier, vol. 137(C), pages 191-194.
    4. Giulio Bottazzi & Angelo Secchi, 2011. "A new class of asymmetric exponential power densities with applications to economics and finance," Industrial and Corporate Change, Oxford University Press, vol. 20(4), pages 991-1030, August.
    5. Halvarsson, Daniel, 2013. "Identifying High-Growth Firms," Ratio Working Papers 215, The Ratio Institute.
    6. Mundt, Philipp & Oh, Ilfan, 2019. "Asymmetric competition, risk, and return distribution," BERG Working Paper Series 145, Bamberg University, Bamberg Economic Research Group.
    7. Sylvain Barde, 2012. "Back to the future: economic rationality and maximum entropy prediction," Studies in Economics 1202, School of Economics, University of Kent.
    8. Cohen, Morrel H. & Eliazar, Iddo I., 2013. "Econophysical visualization of Adam Smith’s invisible hand," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(4), pages 813-823.
    9. Gregor Semieniuk & Ellis Scharfenaker, 2014. "A Bayesian Latent Variable Mixture Model for Filtering Firm Profit Rate," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2014-1, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    10. Matthias Duschl & Thomas Brenner, 2013. "Characteristics of regional industry-specific employment growth rates' distributions," Papers in Regional Science, Wiley Blackwell, vol. 92(2), pages 249-270, June.
    11. Cosimo Abbate & Alessandro Sapio, 2016. "Gazelles and muppets in the City: Stock market listing, risk sharing, and firm growth quantiles," LEM Papers Series 2016/33, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    12. Eliazar, Iddo I. & Cohen, Morrel H., 2013. "On the physical interpretation of statistical data from black-box systems," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(13), pages 2924-2939.
    13. Einar Erlingsson & Simone Alfarano & Marco Raberto & Hlynur Stefánsson, 2013. "On the distributional properties of size, profit and growth of Icelandic firms," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 8(1), pages 57-74, April.
    14. Williams, Michael A. & Pinto, Brijesh P. & Park, David, 2015. "Global evidence on the distribution of firm growth rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 432(C), pages 102-107.
    15. repec:bla:jecsur:v:32:y:2018:i:3:p:940-960 is not listed on IDEAS
    16. Mundt, Philipp & Alfarano, Simone & Milaković, Mishael, 2019. "Exploiting ergodicity in forecasts of corporate profitability," BERG Working Paper Series 147, Bamberg University, Bamberg Economic Research Group.
    17. Mundt, Philipp & Förster, Niels & Alfarano, Simone & Milakovi?, Mishael, 2014. "The real versus the financial economy: A global tale of stability versus volatility," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-26.
    18. Alfarano, Simone & Milaković, Mishael & Irle, Albrecht & Kauschke, Jonas, 2012. "A statistical equilibrium model of competitive firms," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 136-149.
    19. Paulo L. dos Santos & Jangho Yang, 2018. "Arbitrage, Information, and the Competitive Organization of Distributions of Profitability," Working Papers 1803, New School for Social Research, Department of Economics.
    20. Eliazar, Iddo, 2017. "Inequality spectra," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 469(C), pages 824-847.
    21. Paulo dos Santos, 2016. "The Principle of Social Scaling," Working Papers 1606, New School for Social Research, Department of Economics.
    22. Eliazar, Iddo, 2014. "From entropy-maximization to equality-maximization: Gauss, Laplace, Pareto, and Subbotin," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 415(C), pages 479-492.
    23. Sylvain Barde, 2015. "Back to the Future: Economic Self-Organisation and Maximum Entropy Prediction," Computational Economics, Springer;Society for Computational Economics, vol. 45(2), pages 337-358, February.
    24. Matthias Duschl & Thomas Brenner, 2011. "Characteristics of Regional Industry-specific Employment Growth – Empirical Evidence for Germany," Working Papers on Innovation and Space 2011-07, Philipps University Marburg, Department of Geography.
    25. Wagner, Friedrich & Milaković, Mishael & Alfarano, Simone, 2010. "Firm profitability and the network of organizational capabilities," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4769-4775.

    More about this item

    Keywords

    Statistical equilibrium Classical competition Maximum entropy Profit rates Firm growth rates Subbotin distribution Laplace distribution;

    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions

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