Evolutionary Analysis of Strategic Firm Behavior

This chapter focuses on the suitability of the population approach employed for analysis of economic evolution in Modern Evolutionary Economics (MEE) to strategic analysis. Population thinking in strategy analysis (as opposed to typological thinking) emphasizes the causal importance of within-population variation. What is required from a strategy perspective is that the analysis of the evolution of a population of profit-seeking firms be conducted at a level of aggregation which allows the most comprehensive understanding of the role of firms’ dynamic strategy in causing the structural change. The evolutionary processes that cause structural changes to the capitalist market economy (or the market structure at a lower level of aggregation) originate within the firms and involve processes of investment and innovation. The [analytical] objective is to explain the structural change of the economic population of profit-seeking firms in terms of various firm-level strategic actions of goal-directed firms. The continuing stream of strategic actions, which purportedly cause structural changes in the economic population, in turn lend themselves to be explained as outcomes of evolutionary processes. A coherent theory of evolution of populations of profit-seeking firms must be grounded in the unique phenomenon of the industrial dynamics unfolding within a continuously evolving market economy. The main challenge in doing so is to bring together the science of evolution and the economic phenomenon (i.e., economic change). Such an evolutionary theory should not only explain the origin and evolution of the economy but also that of the elemental firms.