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Over the past decades, exit has been analyzed at the theoretical and empirical levels. From this rich series of contributions, two basic patterns of exit can be identified: the revolving door and the gale of creative destruction. In the first, the liability of newness plays a major role in the exit process, while in the second the displacement of non-innovators is the driver of exit. We have tested these two patterns of exit on the population of Dutch firms that exited in 2018. We find confirmation that the two patterns characterize different types of industries. In industries in which innovation does not play a major role, the revolving door effect is the typical pattern and exit is concentrated among the adolescent firms. These firms are also small in size. On the contrary, in industries in which innovation plays a role, exit takes place both among infant as well as mature firms. Exiters are not necessarily only the smaller firms. While a highly innovative and uncertain environment can threaten the survival of infant firms, the exit of mature firms is driven by the innovation of young firms, following the gale of creative destruction.

Twenty years ago, we introduced the history friendly modeling approach to formally study industrial dynamics. In this paper, we look retrospectively at the results that the history friendly literature has achieved so far and what are the challenges ahead of us. We present the main principles, methods, and building blocks of the approach, and then we illustrate it through two applications. The first one investigates the impact of entry in the mainframes segment of the computer industry. The second application studies the effect of different industrial policies in uncertain technological environments.

This article provides an overview of the main traits of the historical development of the pharmaceutical industry, using the lenses of the evolutionary approach to economic and industrial change. After a brief overview of the main evolutionary concepts which guide the subsequent discussion, our presentation identifies four main eras: from the formative stages (from the late 1800s to War World II) to the so-called Golden Age (the 1940s to the mid-1970s), the biotechnology revolution (the 1970s to the new millennium, approximately) and what we label the ‘Winter of Discontent?’ (the first decade of the new century). Within all these epochs, we discuss the main trends in technology, firms' strategies and structures, patterns of competition, demand, regulation and institutional developments. Section 6 concludes the article, briefly discussing some main implications for the present and future of the industry on the one hand and for the relevance of an evolutionary approach to the analysis of corporate and indus...

The notion of disruptive technologies has become in recent years a prominent concept in industrial dynamics and strategy. Yet, we still know too little about the frequency, intensity and modalities of this crucial phenomenon, let alone about the implications for strategy and policy making. There are indeed various meanings and interpretations of this concept, in the literature and in practice, but they often lack generality and in most instances theories rely on a quite narrow set of specific cases of particular firms, products and industries. This paper will not review the details of this debate. Rather, some more basic issues are discussed about the intensity and forms of disruptive innovation and the strategies and reactions of incumbents to the threats presented by new technologies. The paper presents and discusses the various meanings and forms of this concept as well as the conflicting evidence coming from different sources and methodologies in order to clarify its relevance and the differentiated ways in which it appears (or it doesn’t appear), thus providing very preliminary and basic indications for analysis and action. The paper concludes that in the aggregate and over time what we observe is a puzzling co‐existence and turbulence and stability in industrial dynamics, which appears to be driven by the complex interplay of differentiated processes of market selection and – above all – learning within firms. The specific characteristics of the relevant technologies, markets and firms are fundamental determinants of the patterns of competition and industrial change and they have to be considered carefully in the development of theories, strategies and policies.

In this paper we examine the effects that user-producer interactions have on innovation and the dynamics of market structure of two vertically related industries under alternative contractual regimes. The existence of advantages stemming from users-producers relationships introduces a dynamic “matching” problem between firms characterized by heterogeneous capabilities and imperfect information who act in a continuously changing environment but are however able to improve their products also through interactive and interdependent learning processes. Our results highlight the subtle trade-offs and dynamic interdependencies that arise in these contexts. In particular, we show that: (a) a trade-off is present between the exploitation of past experience and the exploration of new suppliers; (b) externalities are present, even if the advantages arising from interactions do not spill over to other firms; (c) imperfect information and agents heterogeneity are crucial factors in determining the consequences of alternative contractual arrangements on industry dynamics; (d) vertical interdependencies propagate the effects of specific firms’ decisions across industries and over time, so that the resulting dynamics is characterized by interacting path-dependent processes.

This essay discusses the strength and weaknesses of the so-called linear model (LM) of innovation. It is a reaction to the habit of criticising it as over simplistic, mechanistic, or simply blatantly wrong. We argue that, while some criticisms are of course well grounded, many others are instead based on loose interpretations and unwarranted assumptions. In order to separate the wheat from the chaff, this essay first presents a comprehensive description of the linear model and differentiates it from the caricature many refer to. Second, we discuss the main criticisms put forward and argue that many of them are not at all destructive, but can be easily accepted within a refined version of the LM. Third, we discuss the policy implications often derived (or said to derive) from the LM to argue that the LM itself is distinctively policy-neutral. Other assumptions have to be added to justify alternative policy implications.

In this article, we present a history-friendly model of the changing vertical scope of computer firms during the evolution of the computer and semiconductor industries. The model is "history-friendly," in that it attempts at replicating some basic, stylized qualitative features of the evolution of vertical integration on the basis of the causal mechanisms and processes, which we believe can explain the history. These factors are identified in the coevolution of capabilities, the size of markets, and the structure of industries. In particular, the basic assumption is that the principal force behind the patterns of vertical integration and disintegration of computer firms was the differential development of capabilities for designing and producing semiconductors among firms. On this basis, the changing boundaries of firms are analyzed in the context of dynamic and uncertain technological and market environments, characterized by periods of technological revolutions punctuating periods of relative technological stability and smooth technical progress. The model illustrates how the patterns of vertical integration and specialization in the computer industry change as a function of the evolving levels and distribution of firms' capabilities over time and how they depend on the coevolution of the upstream and downstream sectors. Specific conditions in each of these markets-the size of the external market, the magnitude of the technological discontinuities, the lock-in effects in demand-exert critical effects and feedbacks on market structure and on the vertical scope of firms as time goes by. Copyright 2008 , Oxford University Press.

Vaccine production is now at the heart of the debate on development. This paper argues that, as well as economic policies to address market failures, development policies aimed at fostering vaccine innovation should also consider the institutional and organisational uncertainties. The International Aids Vaccine Initiative (IAVI), a product development PPP, is attempting to increase vaccine production for neglected diseases by acting both as a broker and integrator of knowledge. Within IAVI and perhaps other PPPs there is a related tension between an emphasis on private pharmaceutical sector efficiency and sustainable development activities that requires understanding and managing if PPPs are to successfully reach their goals.

Resume Cet article est une premiere tentative de modelisation, suivant une logique fidele a l’histoire, des dynamiques de long terme des structures de marche et de l’innovation dans l’industrie pharmaceutique. Le modele examine les relations pouvant exister entre la nature de l’espace de recherche, la demande, les types de concurrence et l’evolution de l’industrie au cours de deux periodes caracteristiques de l’industrie pharmaceutique, a savoir l’âge du criblage aleatoire et celui de la biologie moleculaire. Il cherche ainsi a prouver que la concentration dans l’industrie pharmaceutique resulte du caractere cumulatif limite des activites innovantes et de la fragmentation du marche. Le modele est conforme a l’observation empirique et repond aux changements survenus d’une part au niveau des parametres habituels que sont la demande, les couts, les economies d’echelle et les conditions d’opportunite, et d’autre part au niveau des parametres propres au secteur, autrement dit, les avantages relatifs des nouvelles firmes de biotechnologies sur les firmes installees. A l’exception des augmentations de couts, le modele est assez robuste au changement de ses caracteristiques structurelles : il est assez difficile de considerablement accroitre la concentration et de voir les nouvelles firmes de biotechnologies parvenir a supplanter les firmes installees

This paper is a first attempt at modelling the long-term dynamics of market structure and innovation in the pharmaceutical industry in a history-friendly way. The model examines the relationships between the nature of the search space, demand, the patterns of competition, and industry evolution in the age of random screening and in the age of molecular biology, and shows that concentration in the pharmaceutical industry is shaped by lack of cumulativeness in innovative activities and market fragmentation. The model conforms to our appreciative understanding and responds to changes in parameters concerning demand, costs, economies of scale, opportunity conditions and the relative advantages of new biotechnology firms (NBFs) vis-a-vis incumbents. With the exception of cost increases, the model is quite robust to these changes in its essential features: it is quite difficult to raise substantially concentration and to have NBFs displacing incumbents.

This paper examines the persistence of innovative activities at the firm level in a comparative perspective. A new data set is used composed of six panel data, one for each of the following countries: France, Germany, Italy, UK, Japan and the USA. For each country, we use data on patent applications to the European Patent Office in the period 1978–1993 by 1200–1400 manufacturing firms. Using a transition probability matrix (TPM) approach, we find evidence for the existence of persistence in innovative activities, although, it is not very high in the aggregate and it declines as time goes by. However, both great innovators and non-innovators have a high probability to remain in their state and persistent innovators originate a disproportionate share of innovative activities. In this sense, persistence in innovative activities is quite strong. These tendencies apply to all countries considered here, although, clear country-specific properties are observed. Moreover, there is heterogeneity also across industrial and size classification. Intersectoral differences are invariant across countries, suggesting that persistence is (at least partly) a technology-specific variable. Persistence tends to increase with firm size, but the relationship between firms’ size and persistence is strongly-country-specific and it is not a simple one.

In this paper, we explore some problems that industrial policy faces in industries characterized by dynamic increasing returns on the basis of a ‘history friendly model’ of the evolution of the computer industry. How does policy affect industry structure over the course of industry evolution? Is the timing of the intervention important? Do policy interventions have indirect and perhaps unintended consequences on different markets at different times? We focus on two sets of policies: antitrust and interventions aiming at supporting the entry of new forms in the industry. The results of our simulations show that, if strong dynamic increasing returns are operative, both through technological capabilities and through customer tendency to stick with a brand, there is little that antitrust and entry policy could have done to avert the rise of a dominant firm in mainframes. On the other hand, if the customer lock in effect had been smaller, either by chance or through policies that discouraged efforts of firms to lock in their customers, the situation might have been somewhat different. In the first place, even in the absence of antitrust or entry encouraging policies, market concentration would have been lower, albeit a dominant firm would emerge anyhow. Second, antitrust and entry encouraging policies would have been more effective in assuring that concentration would decrease. The leading firm would continue to dominate the market, but its relative power would be reduced.

In this paper, we investigate how underlying relevant technological conditions induce distinguishable patterns of change in industry structure and evolution. A mapping is detected between the specific nature of problem decompositions and research techniques at the micro level of knowledge bases, and patterns of structural evolution at the macro level of the industry network. The graph-theoretic techniques we introduce map major technological discontinuities on changes observed at the level of dominant organization forms. They might have applications in other domains, whenever the identification of structural breaks and homological relationships between technological and industrial spaces are important issues.

This paper discusses the development of the biotechnology industry in an Italian region, Lombardy. It asks why significant innovative activities in biotechnology did not emerge in what might have been considered at the outset a promising area for the growth of this industry and why in very recent years some timid symptoms of dynamism seem to be appearing. After an overview of the patterns of the development of biotechnology in Italy, the specific case of Lombardy, is described. Then, the paper discusses what kind of factors might explain the lagging behind of the Italian (and more generally, European) biotechnology industry vis-a-vis the United States.

Resume L'industrie des biotechnologies europeenne semble bel et bien decoller depuis quelques annees. Ce pourrait ětre le retentissement positif des mesures gouvernementales mises en place et de la creation de nouveaux marches, propices au developpement de ce type d'entreprises.

This paper provides new empirical evidence on the patterns of technological entry and exit across sectors and over time. We define `new' innovators—firms which innovate for the first time, and `ex'-innovators—previous innovators that do not innovate any more. We distinguish also between `real' and `lateral' entry and exit. The analysis is based on patent data (European Patent Office) for 49 technological classes in six countries (USA, Japan, Germany, UK, France and Italy) over the period 1978–1991. We find that innovative turbulence is relevant and that it is a composite phenomenon, in which real innovative entrants/exiters and lateral entrants/exiters play different roles. We then examine the patterns of survival of innovative entrants and find that most of the entrants are occasional innovators, while persistent innovators are few in number but large in terms of patents. Subsequently, we analyze differences in the patterns of technological entry and exit at the sectoral level. Finally, the role of national systems of innovation in affecting innovative entry and exit is examined.

Summary The contribution of this paper is twofold. First, it presents the results of a “history-friendly” simulation model of evolution of the pharmaceutical industry. Second, it aims at contributing to a more general methodological discussion about agent-based models by proposing an econometric analysis of the results of the simulations. The case of the pharmaceutical industry has been studied extensively by scholars because, despite the high level of R&D intensity, the industry has been characterized by a relatively low levels of concentration. The model is able to reproduce the main stylized facts of the industry in an evolutionary perspective. In this paper we extend the analysis conducted in two previous works (Garavaglia et al. 2012, 2013) by further qualifying the findings with an extensive econometric investigation of the model outputs. The paper focuses the attention on the determinants of market structure, the innovative performance of the industry, the diversification in multiple submarkets and the level of prices. We find that the properties of the technological and demand regimes are key determinants of the patterns of industry evolution and that the main mechanisms driving the model are the random processes of search, the discovery of new submarkets as well as the interactions between patent protection, imitation and price competition. In addition, this paper emphasizes how the emerging leaders in the industry are those innovative early entrants which entered in large submarkets, showing the importance of the first mover advantage and of the size of the “prize” accruing to innovators when they discover a new rich submarket.

The paper moves a step forward in the direction of establishing a connection between the structure and evolution of knowledge bases and the structure and evolution of organizational forms in innovative activities in a science-intensive industry. The paper has an explicit focus on the dynamics of the network of collaborative agreements in R&D in the pharma/biotech industry after the “molecular biology revolution”. Using a comprehensive dataset, built by the authors integrating several sources in the industry, the dynamics of the network over time is extensively analyzed. With regards to network structure, it is found that, while the size of the network increases over time due to net flows of entry, its topological properties remain relatively unchanged. The evolution of the network has occurred without relevant deformations in the core-periphery profile. With regards to age-dependent propensity to collaborate, the paper finds that the extent of inter-generational collaboration is much more significant than intra-generational collaboration. In addition, the propensity of firms of a given generation to enter into collaboration with firms of a different generation increases with the distance between the two, while the total number of intra-generational collaborations decreases over time and, moreover, tends to decrease for most recent generations. In the paper a unitary and coherent explanation of the evidence is developed, coming to reveal the existence of a striking isomorphism between structural properties of the dynamics of knowledge and of the evolution of network structure.

GIOVANNI D O S I , 1 FRANCO MALERBA, ORIETTA MARSILI and LUIGI ORSENIGO 4 ('Dipartimento di Scienze Economiche, Universita degli Studi di Roma 'La Sapienza', Via A. Cesalpino 12/14,1-00161 Roma, University of Brescia and CESPRI, Bocconi University, Milan, ^Department of Public Economics, University of Rome, Italy and SPRU, University of Sussex, Falmer, Brighton, UK and Istituto di Economia Politica, Bocconi University, Via Gobbi 5, 20136 Milan, Italy)

In this work we discuss the impact of the new ICT techno-economic paradigm upon the vertical and horizontal boundaries of the firm and ask whether the change in the sources of competitive advantage has resulted in changes in the size distribution of firms and also in the degree of concentration of industries. Drawing both on firm-level and national statistical data we assess the evolution of the overall balances between the activities which are integrated within organizations and those which occur through market interactions. While the new paradigm entails “revolutionary” changes in the domain of technology, the modification in industrial structures has been somewhat more incremental. Certainly, the vertical and horizontal boundaries of firms have changed and together one is observing a turnover in the club of biggest world firms accounting also for a shift in the relative importance of industrial sectors. Nonetheless, we do not observe an abrupt fading of the Chandlerian multidivisional corporation in favour of smaller less-integrated firms.

In this essay, we argue that rational choice (RC) provides an inadequate foundation for a theory of economic action. After defining RC sufficiently broadly to encompass much of the bounded rationality literature as well as neoclassical optimization theory, we present three principal arguments against RC. The first is cognitive: economic actors are experts at what they do, and the cognitive processes that underlie experitise are not consistent with RC, descriptively, prescriptively or positively. The second argument begins with the observation that economic action takes place in and through relationships between agents, and these relationships may generate actions that connot be localized to individual agents. We argue that these generative relationships are essential to understanding such fundamental economic phenomena as innovation, and the actions that result from them are not amenable to analysis from a RC perspective. Finally, we argue that most economic agents lack the judgement and execution coherence required by RC. In a companion paper, we propose an alternative foundation for a theory of economic action that builds on the critique of RC presented in this paper.

This paper presents a simulation model of industry evolution in which demand regimes and technological regimes shape the relationship between consumers switching costs and first-mover advantage. Our results show that the extent to which switching costs can be an effective mechanism in generating first-mover advantage depends on demand regimes: switching costs have a very strong impact when demand is homogeneous, and a much weaker one when demand is fragmented. The dimensions of demand regimes contribute differently to this outcome: horizontal fragmentation affects the structure of the industry, vertical fragmentation works at the firm level. Finally, the dimensions of technological regimes do not matter when demand is homogeneous; in the opposite case, they are the key determinants of the existence of advantages for early movers.

This paper presents an agent-based model of industry evolution in which technological and demand conditions contribute to determine both the emergence and performance of spinoff firms. We assume th...

Industrial economics is a rich source of ‘puzzles’ for economic theory. One of them — certainly the most discussed — regards the co-existence of firms (and plants) of different sizes, displaying rather invariant skewed distributions. Other ‘puzzles’, however, concern the sectoral specificities in industrial structures, the persistence of asymmetric corporate performances and the dynamics of entry and exit. The paper reports some preliminary results on evolutionary modeling of the links between the microeconomics of innovation, the patterns of industrial change and some observable invariances in industrial structures.

This paper examines how the nature of the technological regime governing innovative activities and the structure of demand interact in determining market structure, with specific reference to the pharmaceutical industry.The main results are that, while technological regimes remain fundamental determinants of the patterns of innovation, the demand structure plays a crucial role in preventing the emergence of concentration through a partially endogenous process of discovery of new submarkets. However, it is not simply market fragmentation as such that produces this result, but rather the entity of the “prize” that innovators can gain relative to the overall size of the market. Further, the model shows that emerging industry leaders are innovative early entrants in large submarkets. The key question concerns the observation that—despite high degrees ofR&D and marketing-intensity—concentration has been consistently low during the whole evolution of the industry. Standard explanations of this phenomenon refer to the random nature of the innovative process, the patterns of imitation, and the fragmented nature of the market into multiple, independent submarkets. We delve deeper into this issue by using an improved version of our previous “history-friendly” model of the evolution of pharmaceuticals. Thus, we explore the way in which changes in the technological regime and/or in the structure of demand may generate or not substantially higher degrees of concentration.

Pharmaceuticals is one of the few industries in which patents are recognized as being key instruments for privately appropriating the economic benefits of innovation. Competition is largely based on innovation, and basic science is becoming increasingly crucial for the discovery and development of new products. Pharmaceuticals also occupy an extremely socially sensitive sector: large parts of the population increasingly perceive health care as a fundamental human right. For developing countries in particular, health has become a major issue, magnified by the tragedies of pandemics like HIV/AIDS. Controversies about the welfare implications of patents have characterized this industry ever since its inception. But in the last thirty years or so, the establishment of a strong tendency towards an extremely tight IP at the global level regime has made this debate even more heated. In this work, we begin by succinctly reviewing the main problems and the available evidence concerning the relationships between IPRs, innovation and welfare in pharmaceuticals. Next, we summarize the main theoretical arguments in favour and against (strong) IPRs in pharmaceuticals and present the little direct available empirical evidence, concerning respectively innovation and drug prices. Fianlly, we focus on TRIPS and Access to Care in developing countries, with particular reference to the case of HIV (the most emblematic example of the problems generated by enforcement of the TRIPS agreement).

There is little doubt that over the last three decades, the world economy has witnessed the emergence of a cluster of new technologies centred on eletronic-based information and communication technologies. Such ICT technologies not only gave rise to new industries but, equally important, deeply transformed incumbent industries, their organizational patterns and their drivers of competitive success.

This chapter introduces some of the most salient aspects of the debate regarding the relationships between stronger intellectual property rights (IPRs) regimes, innovation, and development. Despite increased knowledge on the subject, little is known on the relationships between IPRs, innovation, and growth, especially as developing countries are concerned. It focuses on the pharmaceutical patenting activities in Brazil using domestic patent data. Firstly, it shows that the adoption of TRIPs had substantial positive impact on the number of patent applications in Brazil, but that the great majority of these new patent applications have come from nonresidents, most likely as extensions of foreign patents. It is too early to assess if this substantial increase in (foreign) patents is due to pipeline patents or if it will become a permanent characteristic of patenting activity in Brazil. Secondly, it shows the growth of the share of the chemical and pharmaceutical patents compared to other fields.

This article provides an overview of the Italian side of Giovanni Dosi in terms of his career and works. It brings up two unpublished papers by Dosi showing in part his wider interests in philosophical themes. The article concludes by noting that by recognizing that many of the problems the world faces are not natural or optimal outcomes but are instead the result of human institutions, choices, and path dependencies, Dosi's work also has a very policy-oriented focus. Copyright 2008 , Oxford University Press.

In this work we discuss the impact of the new ICT techno-economic paradigm upon the vertical and horizontal boundaries of the firm and ask whether the change in the sources of competitive advantage has resulted in changes in the size of distribution of firms and also in the degree of concentration of industries. Drawing both on firm-level and national statistical data we assess the evolution of the overall balances between the activities which are integrated within organizations and those which occur through market interactions.While the new paradigm entails "revolutionary" changes in the domain of technology, the modification in industrial structures has been somewhat more incremental. Certainly, the vertical and horizontal boundaries of firms have changed and together one is observing a turnover in the club of biggest world firms, accounting also for a shift in the relative importance of industrial sectors. Nonetheless, we do not observe any abrupt fading away of the Chandlerian multidivisional corporation in favour of smaller less-integrated firms.

This paper adopts a system-evolutionary perspective to describe the dynamics of the life science sector and reflect on regional innovation policy. It begins with a brief outline of the evolution of life sciences and of the biotechnology industry. A crucial feature of such evolution is the strong tendency towards geographical concentration of research and related economic activities. The formation and growth of bio-clusters have sometimes appeared to be spontaneous, in that governments have not been in the driving seat. However, many regional and national governments have now developed policy frameworks to support the development of bio-clusters. Regional and evolutionary economics contribute to explain cluster emergence and growth, but little is known about pre-emergence conditions. As a result, although policy measures aimed at supporting emergence and growth are grounded on direct evidence and observable transformations, starting clusters from scratch often involves replicating the pathways fol...

Paper prepared for the “Elgar Companion to Neo-Schumpeterian Economics, edited by Horst Hanusch and Andreas Pyka. Quite obviously, this paper is largely based on earlier articles written jointly with Franco Malerba, Richard Nelson and Sidney Winter. However, they are not responsible for any mistakes nor they might necessarily agree with all the ideas presented in this paper.