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Journal of Industry, Competition and Trade

, Volume 12, Issue 2, pp 239–263 | Cite as

Heterogeneous Distributions of Firms Sustained by Innovation Dynamics—A Model with Empirical Illustrations and Analysis

  • Martin AnderssonEmail author
  • Börje JohanssonEmail author
Article

Abstract

This paper develops a framework of innovation dynamics to appreciate observed heterogeneity of firm size distributions, in which dynamics refer to exit and entry of product varieties and variety markets of individual firms. The analysis is based on a model of variety-triplets where every such triplet in the economy is identified by a unique combination of a variety, destination and firm. New variety triplets are introduced by innovating firms in a quasi-temporal setting of monopolistic competition. Ideas for variety-triplets arrive to firms according to a firm-specific and state dependent Poisson process, whereas variety triplets exit according to a destination-specific Poisson process. The empirical analysis employs a detailed firm-level data base which provides information about all variety triplets. Firm size is measured by a firm’s number of variety triplets. The empirical results are compatible with the model predictions of (i) a persistent distribution of firm sizes, (ii) frequent events of exit and entry, and (iii) state dependent entry, where a state may be given by each firm’s composition of triplets and/or other firm attributes.

Keywords

innovation firm heterogeneity size distribution entry exit dynamics 

JEL

L11 O31 F12 L26 

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Jönköping International Business School (JIBS)JönköpingSweden
  2. 2.Centre of Excellence for Science and Innovation Studies (CESIS)Royal Institute of TechnologyStockholmSweden

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