Significant Feedbacks in Firm Growth and Market Structure

Paul A Kattuman and Alexandru Chirmiciu

Working Papers from Centre for Business Research, University of Cambridge

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.

Keywords: Firm growth; urn models; feedback process; size distribution; concentration ratio (search for similar items in EconPapers)
JEL-codes: C16 L11 L60 (search for similar items in EconPapers)
Date: 2003-09
New Economics Papers: this item is included in nep-com and nep-ent
Note: PRO-1
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Persistent link: https://EconPapers.repec.org/RePEc:cbr:cbrwps:wp270

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