R&D Behavior and the Emergence of Fat Tailed Firm Size Distributions

Zakaria Babutsidze

No 2009-056, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: This paper presents a simple boundedly rational model of a firm and consumer behaviour. We formulate an entry game, where every firm decides on investing in R&D for inventing a new product that will appeal to certain group of consumers. The success depends on the amount of funds available for the project as well as firm's familiarity with the relevant proportion of taste space. We identify the section of parameter space where firms have an incentive to diversify. For these parameter constellations the model results in rich industrial dynamics. Equilibrium rm size distributions are heavy tailed and skewed to the right. The heaviness of the tail depends on one industry-level parameter.

Keywords: R&D; Product innovation; Market knowledge; Firm size distribution (search for similar items in EconPapers)
JEL-codes: C72 D21 L11 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2009056

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