Firm size, rivalry and the extent of the market in endogenous technological change

Evidence shows that firms build their market position by accumulating knowl edge protected by secrecy, patents and other appropriation devices. I explo re the implications of this fact in a model economy where oligopolistic fir ms establish in-house R&D programs, In symmetric equilibrium, the number of firms determines concentration and firm size, These determine the scale an d the efficiency of R&D operations and the rate of innovation. The number o f firms, moreover, is endogenous and determined jointly with the rate of gr owth by the zero-profit condition. This property yields new results. For ex ample, the scale effect of population size may be negative. The market allo cation of resources is not Pareto optimal. I discuss the nature of this dis tortion (C) 1999 Elsevier Science B.V. All rights reserved. JEL classificat ion. E10; L16; O31; O40.