Analysis of a firm's optimal size based on accessible market capacity

Abstract

E-commerce has dramatically reduced the limitation of space and time on economic activities, resulting in individuals having access to a huge number of consumers. In this paper, we propose a company's optimal size decision model containing management costs as a means of investigating the evolution of the company size in e-commerce. Given that production decisions are made based on accessible market capacity, we explain how a company enters the market, and we draw an evolutionary path of the optimal company size. The results show that in the early expansion stage of accessible market capacity, a firm's optimal size keeps increasing; after reaching a peak, the change in a firm's optimal size depends on its cost management. When the accessible market capacity reaches a threshold, the firm will no longer be in the market, and may no longer exist. Finally, we construct a simulation framework based on complex adaptive systems to validate our proposed model. A simulation experiment confirms our model and reveals the dynamic co-evolution process of individual producers and firms.