Applied Evolutionary Economics

Applied Evolutionary Economics

New Empirical Methods and Simulation Techniques

Edited by Pier Paolo Saviotti

The expert contributors to this book examine recent developments in empirical methods and applied simulation in evolutionary economics. Using examples of innovation and technology in industry, it is the first book to address the following questions in a systematic manner: Can evolutionary economics use the same empirical methods as other research traditions in economics?; Is there a need for empirical methods appropriate to the subject matter chosen?; What is the relationship between appreciative theorising, case studies and more structured empirical methods?; and What is the relationship of modelling and simulation to empirical analysis?

Chapter 3: Increasing Returns and Network Structure in the Evolutionary Dynamics of Industries

Andrea Bonaccorsi and Paola Giuri

Subjects: economics and finance, evolutionary economics

Extract

1 Andrea Bonaccorsi and Paola Giuri INTRODUCTION The role of increasing returns in the explanation of the dynamics of economic systems, and of industries in particular, has recently received new attention. Endogenous growth theory has pointed out the role of increasing returns arising from the repeated use of productive knowledge at the level of countries and regional systems (Romer, 1986, 1990, 1991). New trade theory stresses the importance of increasing returns to scale and imperfect competition in explaining international trade (Helpman and Krugman, 1985; Krugman, 1990, 1994). Business history has offered a rich repertory of cases in which companies, that were able to pursue economies of scale and scope and invest in technology, organization and marketing, reached a position of dominance in the industry (Chandler, 1990). Theories of industry life cycle are based on the assumption that while product innovation does not favour large firms per se, innovation in manufacturing processes and process R&D is subject to increasing returns, favouring large incumbents over smaller or newer firms (Klepper, 1996). In the diffusion of competing technologies, a great deal of attention has been devoted to increasing returns to adoption, or positive feedbacks on the demand side, to explain the emergence of technological monopolies (David, 1985; Katz and Shapiro, 1986; Arthur, 1989, 1994; Bassanini and Dosi, 1998). While this renewed interest must be considered positively, it also creates delicate theoretical problems for evolutionary economics. In fact, in evolutionary economics properties at the level of individual agents (for example cost...

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