Consumer inertia, firm growth and industry dynamics

Arthur Fishman; Rafael Rob

doi:10.1016/S0022-0531(02)00035-2

Consumer inertia, firm growth and industry dynamics

Arthur Fishman
, Rafael Rob

Research output: Contribution to journal › Article › peer-review

27 Scopus citations

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.

Original language	English
Pages (from-to)	24-38
Number of pages	15
Journal	Journal of Economic Theory
Volume	109
Issue number	1
DOIs	https://doi.org/10.1016/S0022-0531(02)00035-2
State	Published - 1 Mar 2003
Externally published	Yes

Keywords

Consumer inertia
Customer loyalty
Entry and exit
Firm growth
Firm size distribution
R&D
Search cost

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10.1016/S0022-0531(02)00035-2

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KW - Firm size distribution

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KW - Search cost

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Consumer inertia, firm growth and industry dynamics

Abstract

Keywords

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