Equal chances, unequal outcomes? : Network-based evolutionary learning and the industrial dynamics of superstar firms

Faculty/Professorship: International Economics  ; Political Theory  
Author(s): Schulz, Jan  ; Mayerhoffer, Daniel  
Publisher Information: Bamberg : Otto-Friedrich-Universität
Year of publication: 2022
Pages: 1357–1385
Source/Other editions: Journal of business economics : JBE, 91 (2021), 9, S. 1357–1385 - ISSN: 1861-8928
is version of: 10.1007/s11573-021-01047-8
Year of first publication: 2021
Language(s): English
Licence: Creative Commons - CC BY - Attribution 4.0 International 
URN: urn:nbn:de:bvb:473-irb-548565
With the advent of platform economies and the increasing availability of online price comparisons, many empirical markets now select on relative rather than absolute performance. This feature might give rise to the ‘winner takes all/most’ phenomenon, where tiny initial productivity differences amount to large differences in market shares. We study the effect of heterogeneous initial productivities arising from locally segregated markets on aggregate outcomes, e.g., regarding revenue distributions. Several of those firm-level characteristics follow distributional regularities or ‘scaling laws’ (Brock in Ind Corp Change 8(3):409–446, 1999). Among the most prominent are Zipf’s law describing the largest firms‘ extremely concentrated size distribution and the robustly fat-tailed nature of firm size growth rates, indicating a high frequency of extreme growth events. Dosi et al. (Ind Corp Change 26(2):187–210, 2017b) recently proposed a model of evolutionary learning that can simultaneously explain many of these regularities. We propose a parsimonious extension to their model to examine the effect for deviations in market structure from global competition, implicitly assumed in Dosi et al. (2017b). This extension makes it possible to disentangle the effects of two modes of competition: the global competition for sales and the localised competition for market power, giving rise to industry-specific entry productivity. We find that the empirically well-established combination of ‘superstar firms’ and Zipf tail is consistent only with a knife-edge scenario in the neighbourhood of most intensive local competition. Our model also contests the conventional wisdom derived from a general equilibrium setting that maximum competition leads to minimum concentration of revenue (Silvestre in J Econ Lit 31(1):105–141, 1993). We find that most intensive local competition leads to the highest concentration, whilst the lowest concentration appears for a mild degree of (local) oligopoly. Paradoxically, a level playing field in initial conditions might induce extreme concentration in market outcomes.
GND Keywords: Unternehmen; Wettbewerb; Marktstruktur
Keywords: Agent-based modelling, Replicator dynamics, Pareto distribution, Fat tails, Evolutionary learning, Competition
DDC Classification: 330 Economics  
RVK Classification: QC 130   
Type: Article
URI: https://fis.uni-bamberg.de/handle/uniba/54856
Release Date: 8. August 2022

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