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Industry dynamics, technological regimes and the role of demand

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  • Isabel Almudi

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  • Francisco Fatas-Villafranca
  • Luis Izquierdo

Abstract

In this paper, we propose an industrial dynamics model to analyze the interactions between the price-performance sensitivity of demand, the sources of innovation in a sector, and certain features of the corresponding pattern of industrial transformation. More precisely, we study market concentration in different technological regimes and demand conditions. The computational analysis of our model shows that market demand plays a key role in industrial dynamics. Thus, although for intermediate values of the price-performance sensitivity, our results show the well-known relationships in the literature between technological regimes and industry transformation, we find surprising outcomes when demand is strongly biased either towards price or performance. Hence, for different technological regimes, a high performance sensitivity of demand tends to concentrate the market. On the other hand, under conditions of high price sensitivity, the industry generally tends to atomize. That is to say, for extreme values of the price-performance sensitivity of demand, we find concentrated or atomized market structures no matter the technological regime we are in. These results highlight the importance of considering the role of demand in the analysis of industrial dynamics. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Isabel Almudi & Francisco Fatas-Villafranca & Luis Izquierdo, 2013. "Industry dynamics, technological regimes and the role of demand," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 1073-1098, November.
  • Handle: RePEc:spr:joevec:v:23:y:2013:i:5:p:1073-1098
    DOI: 10.1007/s00191-013-0303-y
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    References listed on IDEAS

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    1. Malerba, Franco, 2007. "Innovation and the dynamics and evolution of industries: Progress and challenges," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 675-699, August.
    2. Fatas-Villafranca, Francisco & Jarne, Gloria & Sanchez-Choliz, Julio, 2009. "Industrial leadership in science-based industries: A co-evolution model," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 390-407, October.
    3. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1120-1171, September.
    4. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    5. Winter, Sidney G., 1984. "Schumpeterian competition in alternative technological regimes," Journal of Economic Behavior & Organization, Elsevier, vol. 5(3-4), pages 287-320.
    6. Timothy Bresnahan & Pai-Ling Yin, 2010. "Reallocating innovative resources around growth bottlenecks," Industrial and Corporate Change, Oxford University Press, vol. 19(5), pages 1589-1627, October.
    7. Franco Malerba, 2006. "Innovation and the evolution of industries," Journal of Evolutionary Economics, Springer, vol. 16(1), pages 3-23, April.
    8. Steven Klepper & Franco Malerba, 2010. "Demand, innovation and industrial dynamics: an introduction," Industrial and Corporate Change, Oxford University Press, vol. 19(5), pages 1515-1520, October.
    9. Isabel Almudi & Francisco Fatas-Villafranca & Luis R. Izquierdo, 2012. "Innovation, catch-up, and leadership in science-based industries," Industrial and Corporate Change, Oxford University Press, vol. 21(2), pages 345-375, April.
    10. Francisco Fatas‐Villafranca & Dulce Saura & Francisco J. Vazquez, 2011. "A Dynamic Model of Public Opinion Formation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(3), pages 417-441, June.
    11. Breschi, Stefano & Malerba, Franco & Orsenigo, Luigi, 2000. "Technological Regimes and Schumpeterian Patterns of Innovation," Economic Journal, Royal Economic Society, vol. 110(463), pages 388-410, April.
    12. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-583, June.
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    Cited by:

    1. Isabel Almudi & Francisco Fatas-Villafranca & Jesus Palacio & Julio Sanchez-Choliz, 2020. "Pricing routines and industrial dynamics," Journal of Evolutionary Economics, Springer, vol. 30(3), pages 705-739, July.
    2. Isabel Almudi & Francisco Fatas-Villafranca & Luis R. Izquierdo & Jason Potts, 2017. "The economics of utopia: a co-evolutionary model of ideas, citizenship and socio-political change," Journal of Evolutionary Economics, Springer, vol. 27(4), pages 629-662, September.
    3. Isabel Almudi & Francisco Fatas-Villafranca & Gloria Jarne & Julio Sanchez-Choliz, 2017. "Rethinking Macroeconomic Policy within a Simple Dynamic Model," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 425-464, July.
    4. Peili Yu & Junguo Shi & Bert M. Sadowski & Önder Nomaler, 2020. "Catching Up in the Face of Technological Discontinuity: Exploring the Role of Demand Structure and Technological Regimes in the Transition from 2G to 3G in China," Journal of Evolutionary Economics, Springer, vol. 30(3), pages 815-841, July.
    5. Fulvio Castellacci & Arne Fevolden, 2015. "Innovation and Liberalization in the European Defence Sector," Books, Edward Elgar Publishing, number 15941.

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    More about this item

    Keywords

    Industrial dynamics; Demand; Technological regimes; Evolutionary economics; O33; B52;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;

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