Consumer inertia, firm growth and industry dynamics |
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Authors: | Arthur Fishman |
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Institution: | a Department of Economics, Bar Ilan University, Ramat Gan, Israel b Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104-6297, USA |
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Abstract: | 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. |
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Keywords: | D83 L11 L15 |
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