The limits of modularity in innovation and production
AbstractModularity has gained recently a growing attention in the management literature as a key to explain the contemporary trends of industrial dynamics, according to which external «market-based» economies have become predominant over internal «bureaucracy-based» economies. Nowadays global supply-networks play a key role for a large share of material and immaterial inputs in many sectors, and the diffusion of modular architectures for products, in connection with flexible production systems, is often indicated by the literature as the main driver for this change. In order to analyze better this connection, in this paper a model is presented which tries to focus on the factors that influence the competitive performance of internal versus outsourced production when the two options are subject to a trade-off with respect to the kind of innovation strategies they can use. In particular through a set of exploratory agent-based simulations we verify two hypotheses. The first one is the existence of a trade-off between decentralized search and complexity, as suggested by a recent strand of literature which has modeled innovation as a discovery process on complex fitness landscapes. The second one is a comparative advantage of centralized search, which occurs, for all levels of complexity, when the returns of innovation are lower. When the conditions just described occur in a competitive context, the limits of modularity become apparent.
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Bibliographic InfoPaper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 176.
Length: 31 pages
Date of creation: Sep 2005
Date of revision: Sep 2005
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Find related papers by JEL classification:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-05 (All new papers)
- NEP-CMP-2006-03-07 (Computational Economics)
- NEP-INO-2006-03-06 (Innovation)
- NEP-NET-2006-03-20 (Network Economics)
- NEP-TID-2006-03-07 (Technology & Industrial Dynamics)
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