Selection and the Evolution of Industry
Posted: 17 Nov 2009
Date Written: 1982
Abstract
Proposes a theory that explains why smaller firms have higher and more variable growth rates than larger firms. Relying on employer heterogeneity and market selection to generate patterns of employer growth and failure, the model states that efficient firms grow and survive while inefficient firms decline and fail, regardless of firm size. However, firms that fail are actually firms that, if given more time to succeed, would have grown more slowly. These slow growing firms are most often smaller firms. Also provided is a behavior characterization of entry and prices in equilibrium, which is defined as a pair of functions that characterize optimal output and exit behavior of firms. (SFL)
Keywords: Industry concentration, Industry evolution, Firm growth, Firm survival, Firm size, Firm efficiency, Startups, Closing firms, Rates of return, Earnings, Organizational learning, Market entry
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