Forces Generating and Limiting Concentration under Schumpeterian Competition

Richard Nelson and Sidney Winter ()

Bell Journal of Economics, 1978, vol. 9, issue 2, 524-548

Abstract: Stochastic theories of the firm size distribution explain observed size differences among firms as the consequence of random growth rate differences, accumulated over time. Little attention has thus far been paid, however, to economic interpretation of the abstract stochastic processes involved. This paper investigates the implications for size distribution phenomena of a model of industry evolution in which the stochastic elements reflect the uncertainties attending firms' efforts to advance productivity. A simulation experiment establishes that the development of concentration in the model industry is significantly affected by the rate of growth of potential ("latent") productivity, the effectiveness of technological imitation efforts, and the extent to which firms restrain investment in response to perceived market power.

Date: 1978
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