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User-producer relations, innovation and the evolution of market structures under alternative contractual regimes

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Author Info

  • Franco Malerba

    (KITeS, Bocconi Univerity - Milan - Italy)

  • Luigi Orsenigo

    (Università degli Studi di Brescia and KITeS, Bocconi Univerity - Milan - Italy)

Abstract

In this paper we examine the effects that user-producer interactions have on innovation and the dynamics of market structure of two vertically related industries under alternative contractual regimes. The existence of advantages stemming from users-producers relationships introduces a dynamic "matching" problem between firms characterized by heterogeneous capabilities and imperfect information who act in a continuously changing environment but are however able to improve their products also through interactive and interdependent learning processes. Our results highlight the subtle trade-offs and dynamic interdependencies that arise in these contexts. In particular, we show that: (a) a trade-off is present between the exploitation of past experience and the exploration of new suppliers; (b) externalities are present, even if the advantages arising from interactions do not spill over to other firms; (c) imperfect information and agents heterogeneity are crucial factors in determining the consequences of alternative contractual arrangements on industry dynamics; (d) vertical interdependencies propagate the effects of specific firms' decisions across industries and over time, so that the resulting dynamics is characterized by interacting path-dependent processes.

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Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 001.

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Length: pages 37
Date of creation: Dec 2009
Date of revision: Dec 2009
Handle: RePEc:cri:cespri:wp228

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  1. Langlois, Richard N., 2002. "Modularity in technology and organization," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 19-37, September.
  2. Luigi Marengo & Giovanni Dosi, 2003. "Division of Labor, Organizational Coordination and Market Mechanism in Collective Problem-Solving," LEM Papers Series 2003/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  3. Franco Malerba & Richard Nelson & Luigi Orsenigo & Sidney Winter, 2007. "Demand, innovation, and the dynamics of market structure: The role of experimental users and diverse preferences," Journal of Evolutionary Economics, Springer, vol. 17(4), pages 371-399, August.
  4. Cusmano, Lucia & Mancusi, Maria Luisa & Morrison, Andrea, 2009. "Innovation and the geographical and organisational dimensions of outsourcing: Evidence from Italian firm-level data," Structural Change and Economic Dynamics, Elsevier, vol. 20(3), pages 183-195, September.
  5. Tommaso Ciarli & Riccardo Leoncini & Sandro Montresor & Marco Valente, 2008. "Technological change and the vertical organization of industries," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 367-387, August.
  6. Paul Windrum & Andreas Reinstaller & Christopher Bull, 2009. "The outsourcing productivity paradox: total outsourcing, organisational innovation, and long run productivity growth," Journal of Evolutionary Economics, Springer, vol. 19(2), pages 197-229, April.
  7. Franco Malerba & Luigi Orsenigo, 2002. "Innovation and market structure in the dynamics of the pharmaceutical industry and biotechnology: towards a history-friendly model," Industrial and Corporate Change, Oxford University Press, vol. 11(4), pages 667-703, August.
  8. Aoki, Masahiko, 1986. "Horizontal vs. Vertical Information Structure of the Firm," American Economic Review, American Economic Association, vol. 76(5), pages 971-83, December.
  9. Shane Greenstein & Timothy F. Bresnahan, 2001. "special issue: The economic contribution of information technology: Towards comparative and user studies," Journal of Evolutionary Economics, Springer, vol. 11(1), pages 95-118.
  10. Eric von Hippel, 1986. "Lead Users: A Source of Novel Product Concepts," Management Science, INFORMS, vol. 32(7), pages 791-805, July.
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