A Reprise of Size and R & D

Abstract

Numerous studies have shown that within industries, the propensity to perform R & D and the amount of R & D conducted by performers are closely related to the size of the firm, while R & D productivity declines with firm size. These findings have been widely interpreted to indicate that there is no advantage to large firm size in conducting R & D. We show how a simple model based on the idea of R & D cost spreading can explain the prior findings about the R & D-firm size relationship, as well as additional features of the R & D-firm size relationship, implying an advantage to large size in R & D.