New Empirical Methods and Simulation Techniques
Edited by Pier Paolo Saviotti
Chapter 3: Increasing Returns and Network Structure in the Evolutionary Dynamics of Industries
3. Increasing returns and network structure in the evolutionary dynamics of industries1 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...
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