Abstract: Under the background of market demand shrinkage shock，this paper constructs a mathematical model to reveal the characteristics of firms' R&D behavior in the process of industrial organization reconstruction under the impact of shrinkage of market demand．Then,  using the micro sample data of manufacturing listed companies in 2016 － 2018 ， the paper empirically demonstrates the R&D behavior of firms under the impact of the shrinkage of market demand． The results show that the contraction of market demand makes the determinants of R&D behavior of firms change from market structure to market capacity，which causes the change of R&D competition behavior of enterprises，and then leads to the reconstruction of industrial organization; In the face of the exogenous contraction of market capacity，medium － sized and large enterprises will increase R&D investment，while small enterprises will reduce R&D investment． This is in sharp contrast to the phenomenon that small and medium － sized enterprises are the main body of R&D in the period of rapid expansion and slow growth of market capacity． It is an important way to realize the upgrading of industrial technology to fully stimulate consumer demand from the demand side and give full play to the scale advantage of enterprises from the supply side．