Dynamics of Entry and Exit of Product Varieties: – what evolution dynamics can account for the empirical regularities?
2009 (English)Report (Other academic)
Firm-level heterogeneity is substantial even in narrowly defined industries. This paper focuses on formulating evolution dynamics which can account for the observed heterogeneity and its maintenance. Based on examination of data on Swedish firm’ supply pattern to different markets over time, we present a parsimonious model that has the ambition to capture the picture of heterogeneous firms, while accommodating the simultaneous exit and entry of destination varieties in firms’ supply pattern. The model assumes both scale economies of firms and pathdependence, where the latter is manifested in such a way that the arrival rate of innovation ideas to an individual firm is a function of each firm’s stock of varieties at every given point in time. The path-dependence phenomenon is an “explosive” non-linearity, whereas conservation mechanisms include development of demand and exit of established varieties. The described path dependence explains the skewed distribution of varieties across firms, but the question of what keeps the “equilibrium” away from competitive exclusion where only few large firms remain. We make use of simulations to depict and assess the innovation dynamics of the proposed model.
Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2009. , 23 p.
CESIS Working Paper Series in Economics and Institutions of Innovation, 204
innovation, path-dependence, firm-level heterogeneity, evolution dynamics
IdentifiersURN: urn:nbn:se:kth:diva-70085OAI: oai:DiVA.org:kth-70085DiVA: diva2:485850
QC 201202102012-02-102012-01-302012-02-10Bibliographically approved