Using Simulation Experiments to Test Historical Explanations: The Development of the German Dye Industry 1857–1913

In a simulation experiment, building on the abductive simulation approach of Brenner and Werker (Comput Econ 30(3):227–244, 2007), we test historical explanations for why German firms came to surpass British and France firms and to dominate the global synthetic dye industry for three decades before World War I while the U.S. never achieved large market share despite large home demand. Murmann and Homburg (J Evol Econ 11(2):177–205, 2001) and Murmann (Knowledge and competitive advantage: the coevolution of firms, technology, and national institutions. Cambridge University Press, 2003) argued that German firms came to dominate the global industry because of (1) the high initial number of chemists in Germany at the start of the industry in 1857, (2) the high responsiveness of the German university system and (3) the late (1877) introduction of a patent regime in Germany as well as the more narrow construction of this regime compared to Britain, France and the U.S. We test the validity of these three potential explanations with the help of simulation experiments. The experiments show that the second explanation—the high responsiveness of the German university system—is the most compelling one because unlike the other two it is true for virtually all plausible historical settings.