Template-type: ReDIF-Paper 1.0
Author-Name: Babutsidze, Zakaria
Author-Email: babutsidze@merit.unu.edu
Author-Workplace-Name: UNU-MERIT
Title: R&D Behavior and the Emergence of Fat Tailed Firm Size Distributions
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.
Classification-JEL: C72, D21, L11
Keywords: R&D, Product innovation, Market knowledge, Firm size distribution
Series: UNU-MERIT Working Papers
Creation-Date: 2009
Number: 056
File-URL: http://www.merit.unu.edu/publications/wppdf/2009/wp2009-056.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2009056