On the emergence of scale-free production networks

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Working paper
Stanislao Gualdi, Antoine Mandel
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Documents de travail du Centre d'Economie de la Sorbonne
Centre d'Economie de la Sorbonne
Building upon the standard model of monopolistic competition on the market for intermediary goods, we propose a simple dynamical model of the formation of production networks. The model subsumes the standard general equilibrium approach and robustly reproduces key stylized facts of firms' demographics. Firms' growth rates are negatively correlated with size and follow a core double-exponential distribution followed by fat tails. Firms' size and production network are power-law distributed. These properties emerge because continuous inflow of new firms shifts away the model from a steady state to a disequilibrium regime in which firms get scaled according to their resistance to competitive forces.
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