Organisation of industry and innovation dynamics

The paper aims at investigating how the organization of a certain industry evolves once the competition among its firms, producing a complex (i.e. non-modular) product, is modeled as the intertwining of innovative search and organizational change. In order to take the full roster of participants into account, and to retain the inner complexity of their decisions, a Pseudo NK model is built up in which a population of firms is called to match a technological frontier. By evolving along different stagesof the sector s life-cycle, such a kind of technological calls for a trade off between two strategies of cost reduction through either outsourcing ortechnological search. Overall, the simulation results confirm previous literature as, for example, in the introductory stage of the industry life cycle,marked by frequent and intense jumps of the technological frontier, firms need to vertically integrate in order to have higher chances to win the competition for a new standard. On the contrary, in the decline stage,in which the technological frontier almost stabilizes, deverticalization allows firms to better compete on costs. These results change if suppliers are allowed to innovate, as they are more likely to lock the market in sub optimal configurations.