System Fitness and the Extinction Patterns of Firms under Pure Economic Competition.pdfVIP

System Fitness and the Extinction Patterns of Firms under Pure Economic Competition Paul Ormerod ( pormerod@volterra.co.uk )* Helen Johns ( hjohns@volterra.co.uk ) Volterra Consulting Ltd The Old Power Station 121 Mortlake High Street London SW14 8SN September 2001 * Corresponding author 1 Abstract The relationships which characterise the outcomes of the interactions between firms in the economy appear to follow power law behaviour. In particular, there is evidence that the empiric al powe r laws which relate the size of an extinction to its frequency are similar for both biological species and firms in the economy. Biological species interact with each other in ways which either increase or decrease the fitness levels of individual speci es. In the same way, firms in the economy carry out strategies, and the net outcome of the interactions between firms is to increase or decrease the fitness of other firms.. Models which are used to describe the interactions of biological species can be given straightforward interpretations in terms of the interactions of firms in an industry. The general versions of models of interactions between agents allow for co-operative behaviour between pairs of agents. We contrast the properties of such a model with special cases of it, in which interactions are restricted so that only competitive interactions between