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Significant Feedbacks in Firm Growth and Market Structure

  • Paul A Kattuman
  • Alexandru Chirmiciu
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    There are some markets where the growth of firms are held to be subject to diminishing returns, or negative feedbacks; and there are other markets where firm growth is believed to be subject to increasing returns, or positive feedbacks. A long run tendency towards monopoly might be expected in this latter market type, as opposed to a tendency towards relative equality of size shares in the former. It would be useful to draw inferences about the nature of the feedback process from observed market shares and concentration. We motivate and develop a test for feedbacks in firm growth under the null hypothesis that there are none. We use the equivalence between an urn model of the no-feedback process and the asymptotic distribution of sums of ordered intervals in the random division of the unit interval. In the empirical application for the United States, we find that most markets are subject to significant positive feedbacks.

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    Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp270.

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    Date of creation: Sep 2003
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    Handle: RePEc:cbr:cbrwps:wp270
    Note: PRO-1
    Contact details of provider: Web page: http://www.cbr.cam.ac.uk/

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    1. Roy Thurik & Enrico Santarelli & David Audretsch & Luuk Klomp, 2002. "Gibrat's Law: Are the Services Different?," Scales Research Reports H200201, EIM Business and Policy Research.
    2. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    3. Sleuwaegen, Leo E & Dehandschutter, Wim V, 1986. "The Critical Choice between the Concentration Ratio and the H-Index in Assessing Industry Performance," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 193-208, December.
    4. Parker, S. C., 1991. "Significantly concentrated markets : Theory and evidence for the U.K," International Journal of Industrial Organization, Elsevier, vol. 9(4), pages 585-590, December.
    5. McCloughan, Patrick, 1995. "Simulation of Concentration Development from Modified Gibrat Growth-Entry-Exit Processes," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 405-33, December.
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