1 Industrial Dynamics: Introduction and Basic Concepts Industrial Structures and Dynamics: Evidence, Interpretations and Puzzles by Dosi, G., F. Malerba, O. Marsili and L. Orsenigo, 1997 Industrial and Corporate Change, V.6, N.1

2 Industrial Organization (IO) versus Industrial Dynamics (ID) IO main focus is on the analysis of the competitive conditions (market structure) and performance in various industries, as well as regulation of economic activity Normative analysis (what kind of public policy?) Basic unit of analysis is the industry Theoretical framework is largely static (analysis of the structure of industry)

3 Industrial Organization (IO) versus Industrial Dynamics (ID) ID has strong links with other sub-disciplines like economic history, economic growth etc. The units of analysis are individual firms or even parts of firms and entire industries It focuses on processes such as the evolution of technologies, firms or industries as well as the causes and consequences of these processes

4 Industrial Organization (IO) versus Industrial Dynamics (ID) ID tradition is more concerned with advances in productivity and with the evolution of cost and production structure than with the number and size structure of firms in an industry or with degree of efficiency of an industry at a given point in time ID puts more emphasis on the economic transformation process than on economic growth (the importance of the content of the dynamic process) The IO tradition is oriented toward analysis of industries and their structure in a static framework whereas the ID tradition is focused on analysis of processes over time at all levels from micro to macro

5 How about Technological Change? IO usually deals with it either in the context of the relationship between market structure and R&D (from public policy point of view) The emphasis in ID, on the other hand, is on technological innovation per se, its contents as well as its causes and consequences

6 Four Main Themes Outlining the Subject Matter of ID  The nature of economic activity in the firm and its connection to the dynamics of supply  How the boundaries of the firm and the degree of interdependence among firms change over time  The role of technological change and the institutional framework conducive to technological progress  The role of economic policy in facilitating adjustment of the economy to changing circumstances- industrial policy

7 Empirical Regularities Some features of the dynamics in  Industrial structures Characteristics of firms such as size, productivity, innovativeness  Performances Individual profitability, growth profiles and survival probabilities  Patterns of technological and organizational learning Modes of innovative search, knowledge bases, the relative importance of process and product innovations

8 Invariances and Differences across Industries? Microeconomic heterogeneity  Diversification: Size, age, productivity, wage, job creation and destruction, investment patterns, innovative activities, over time Associated with not only location, industry or capital but also with unobserved firm and industry specific factors

9 Invariances and Differences across Industries? Persistence (in diversities)  Innovativeness, productivity, profits etc. But the distinction between transitory and persistent features of firm specific characteristics (the speed of adjustment)

10 Invariances and Differences across Industries? Turbulence  Entry, exit, survival Barriers to entry and exit Correlated entry and exit rates Innovators Small firms Size and age Profitability

11 Invariances and Differences across Industries? Mechanisms of productivity growth  Entry and exit unimportant in aggregate productivity  In turn may be major determinant of the dynamics of industry productivity

12 Invariances and Differences across Industries? Invariant structural patterns  Regularities together with heterogeneity and turbulence?  The persistence over time of a skewed distribution of both firm and plant size Gibrat’s Law (proportionate growth) Restricted applicability to particular size classes

13 Invariances and Differences across Industries? Industry-specific features  Capital intensity, advertising intensity, R&D intensity, concentration, profitability differ within industries  Entry, exit, survival, innovative activities, firm’s growth exhibit inter-industry variability

14 Invariances and Differences across Industries? Patterns of technological change and industrial dynamics  Relationships, if any between the patterns of technical change, the characteristics of the firms undertaking it and the ensuing patterns of industrial evolution  Two distinction on innovative patterns Technological ease of entry, major role played by new firms, erosion of the competitive and technological advantages of the established firms (Young Schumpeter) Technological change with strong barriers to entry for new innovators, the prevalence of large established firms in innovative activities, the dominance of firms with accumulated technological capabilities (Old Schumpeter)

15 Puzzles and Questions The coexistence of turbulence and change on the one hand, with persistence and regularities at different levels of observation-from individual firms’ characteristics to industrial aggregates-on the other To achieve a sharper understanding of the factors affecting discontinuities in industrial structures over the evolution of industries  Industrial dynamics and evolution

16 Crucial Distinctions Characteristics of agents: rationality, learning and the sources heterogeneity  Representation of agents, rational versus bounded rationality capable of learning (evolutionary)  Firm-specific sources of heterogeneity  Learning process

17 Crucial Distinctions Nature and properties of dynamic processes  The symmetric complement of the assumptions on what agents know, learn, do concerns what markets do  Two extremes: Ex ante versus ex post  The challenge is to understand how joint processes of micro-learning and collective selection support dynamic patterns

18 Crucial Distinctions Aggregation and emergent regularities  How aggregate regularities can be generated by heterogeneous unit of analysis (firms, products, industries) in a dynamic process

19 Inter-sectoral Differences Whether in different industries the same dynamic processes are able to account for the observed differences or different dynamic processes are at work  Due to being at different stages of their life cycle, industry specific variables (like technological regime) Strategies, learning regimes and history

20 Conclusion and Discussion Dynamic analyses of data on firms, technologies and industries lead to new interpretation of the determinants of industrial structures… Discussion…