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Significant Feedbacks in Firm Growth and Market Structure

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  • Paul A Kattuman
  • Alexandru Chirmiciu

Abstract

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.

Suggested Citation

  • Paul A Kattuman & Alexandru Chirmiciu, 2003. "Significant Feedbacks in Firm Growth and Market Structure," Working Papers wp270, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp270
    Note: PRO-1
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    File URL: https://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-research/downloads/working-papers/wp270.pdf
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    References listed on IDEAS

    as
    1. D.B. Audretsch & L. Klomp & E. Santarelli & A.R. Thurik, 2004. "Gibrat's Law: Are the Services Different?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 24(3), pages 301-324, May.
    2. 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.
    3. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, 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 405-433, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Firm growth; urn models; feedback process; size distribution; concentration ratio;

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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