Innovation by entrants and incumbents
We extend the basic Schumpeterian endogenous growth model by allowing incumbents to undertake innovations to improve their products, while entrants engage in more “radical” innovations to replace incumbents. Our model provides a tractable framework for the analysis of growth driven by both entry of...
| Main Authors: | , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Published: |
Elsevier
2018
|
| Online Access: | http://hdl.handle.net/1721.1/113626 https://orcid.org/0000-0003-0908-7491 |
| Summary: | We extend the basic Schumpeterian endogenous growth model by allowing incumbents to undertake innovations to improve their products, while entrants engage in more “radical” innovations to replace incumbents. Our model provides a tractable framework for the analysis of growth driven by both entry of new firms and productivity improvements by continuing firms. The model generates a non-degenerate equilibrium firm size distribution driven by entry of new firms and expansion exit of existing firms. When there is also costly imitation preventing any sector from falling too far below the average, the stationary firm size distribution is Pareto with an exponent approximately equal to one (the so-called “Zipf distribution”). |
|---|