Capacity Dynamics and Endogenous Asymmetries in Firm Size

Capacity Dynamics and Endogenous Asymmetries in Firm Size∗

Empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries. We propose a dynamic model of capacity accumulation that explains the observed facts. In our model, firms accumulate capacity over time and compete repeatedly in the product market. We assume that capacity is lumpy and that investment and depreciation are subject to idiosy...

Capacity dynamics and endogenous asymmetries in firm size

Capacity Dynamics and Endogenous Asymmetries in Firm

Asymmetries arise and persist provided that one firm has a strategic advantage over the other. The tangible form of this advantage is that one firm can get the other to stop investing. In Section 4 of the paper, we have shown that this is the case under price competition because a firm’s profits from product market competition peak in its own capacity. Below we show that cost/benefit considerat...

Cournot Competition and Endogenous Firm Size∗

We model the firm as a type of artificial neural network that plays a repeated Cournot game. Each period the firm must learn to map environmental signals to both demand parameters and it’s rival’s output choice. In this paper, though, this Cournot game is in the ’background,’ as we focus on the endogenous adjustment of network size. We investigate the long-run behavior of firm/network size as a...

Firm Size Dynamics in the Aggregate Economy ∗

Why do firm growth and exit rates decline with size? What determines the size distribution of firms? This paper presents a theory of firm dynamics that simultaneously rationalizes the basic facts on firm growth, exit, and size distributions. The theory emphasizes the accumulation of industry specific factors in response to industry specific productivity shocks. The emphasis on the accumulation ...