Consumer Inertia, Firm Growth and Industry Dynamics
21 Pages Posted: 23 Oct 2002
Date Written: January 10, 2002
We develop a model of firm size, based on the hypothesis that consumers are "locked in" because of search costs, with firms they have patronized in the past. As a consequence, older firms have a larger clientele and are able to extract higher profits. The equilibrium of this model yields: (i) A downward sloping density of firm sizes. (ii) Older firms are less likely to exit than younger firms. (iii) Larger firms spend more on R&D.
Keywords: Consumer Inertia, Firm Growth, Industry Dynamics, R&D, Firm Size Distribution
Suggested Citation: Suggested Citation