Firm size, innovation, and market share instability: The role of negative feedback and idiosyncratic events

An evolutionary model is built which uses structural and random factors to account for the emergence of market share instability and industry concentration. The structural factors are studied through the relationship between firm size and innovation (dynamic returns to scale) while the random factors are studied through the effect of shocks on this feedback relationship. We find that market share instability is the highest under the negative feedback regime, when the industry specific level of technological opportunity is intermediate, and when shocks are neither very large nor very small