Small Firms, Their Growth and Product Differentiation

25 Pages Posted: 4 Jan 2011 Last revised: 21 Jun 2011

See all articles by Darron Anthony Thomas

Darron Anthony Thomas

University of Technology Jamaica

Shaneka Stewart

affiliation not provided to SSRN

Anetheo Jackson

affiliation not provided to SSRN

Kimesha Francis

affiliation not provided to SSRN

Ralston Henry

affiliation not provided to SSRN

Date Written: June 19, 2011

Abstract

This paper investigates a model of endogenous product differentiation between large well established and small newly established firms. Small firms should have greater growth potential than large mature firms whose growth potential tapers off once they reach a certain size relative to the capacity of the market. The small firm with its newness has a product that is typically seen as being of a lower quality than the products of their larger counterparts. The model explores the interaction of product quality, firm size and the growth of small firms. This paper shows that firms choose size (large or small) and they will maintain their decision throughout any stage of the game. Large firms are more efficient at producing quality, therefore, despite a growth rate advantage, small firms remain small. Driving this result is the fact that the payoff from remaining small outweighs the payoff from its growth potential since becoming large is accompanied by heavy costs. This property ensures that the principle of maximal product differentiation is sustained.

Keywords: Small Firms, Large Firms, Firm Growth, Competition, Product Quality

JEL Classification: LO, L2

Suggested Citation

Thomas, Darron Anthony and Stewart, Shaneka and Jackson, Anetheo and Francis, Kimesha and Henry, Ralston, Small Firms, Their Growth and Product Differentiation (June 19, 2011). Available at SSRN: https://ssrn.com/abstract=1734069 or http://dx.doi.org/10.2139/ssrn.1734069

Darron Anthony Thomas (Contact Author)

University of Technology Jamaica ( email )

Papine
Jamaica

Shaneka Stewart

affiliation not provided to SSRN

Anetheo Jackson

affiliation not provided to SSRN

Kimesha Francis

affiliation not provided to SSRN

Ralston Henry

affiliation not provided to SSRN

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