Firm Size Distribution Goes Online: The Evolution of eBay Firms' Sales Distribution

Abstract

The size distribution of firms is an important indicator of market concentration. Studying the distribution of sales for eBay’s commercial sellers, this paper provides the first analysis of a firm size distribution (FSD) at an online market, further examining its evolution, and the underlying growth rate patterns. The evolution of eBay’s FSD is characterized by increasing mass in its right tail, yet it remains better-fitted by a lognormal than by a power law distribution throughout our ten-year period of analysis. This is in line with a possible convergence towards a power law in the long run, while currently market concentration is lower compared to power law FSDs found in many traditional industries. Smaller firms are the fastest growing group of businesses, followed by large firms. Sellers’ growth rate patterns obey Gibrat’s Law only among the subset of top selling firms.

Keywords: Firm size, sales distribution, distribution fit, market concentration, firm growth

JEL Classification: L11