Strategic Growth of Firms in the Digital Economy: Simulation and Research Proposal

With the rise of the Internet as an important dimension of business, fierce competition is resulting in industries that fit skew distributions, where those few firms that can best leverage the digital economy accrue the majority of the revenues. Porter points out that the Internet erodes industrial profitability and intensifies the need for sound strategy. As a tool for modeling the growth of firms in the competitive Internet environment, we apply Herbert Simon’s model for business firm growth and relate its two key parameters—rate of entry and industrial growth potential—to Porter’s strategic theories. We also introduce the idea of individual growth potential as a measure of firm competitiveness within an industry. We present a research proposal to empirically test the model, and provide the results from a simulation to demonstrate the applicability and usefulness of Simon’s model to the business environment in the digital economy.