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Industrial dynamics explain the evolution, from birth to death, of industries, products, technologies, tastes, agents, institutions.

Evolutionary economics is the strongest paradigm for industrial dynamics.


Essay: Dynamic competition with bi-directional product differentiation, bounded rational consumers, innovation, advertising, and finance

This paper explains and offers you a powerful software tool for understanding the introduction of product and process innovation in a competitive market. Consumers are individual agents with different tastes and personal income. In terms of industrial dynamics, you'll see how product life cycles arise by personally playing the software model or by observing how artificial agents perform.

Essay and software automatic download [2400 KB]


An easy yet powerful, flexible and innovative model of bounded rational insurance purchases, both under a mandate and voluntary participation schemes, with insurers in competition being able to refuse to sell (or being prevented from doing that). Among many other issues, you can explore the reasons why people remain uninsured, including income and ignorance of the risk.

MS Excel file



Profits from product and process innovation: an empirical survey (October 2013)

Today innovation is being hailed as a key driver of growth for the economy and for the survival and success of individual firms. Understanding the returns to investments in R&D and other innovative activities is, therefore, a critical step in convincing managers and policy makers of the importance of making such investments.

This empirical analysis shows that product innovations increase markups on average by 5.1% points by shifting out demand and increasing prices. Process innovation increases markups by 3.8% points due to incomplete pass-through of the cost reductions associated with process innovation. This is found to be particularly true for smaller firms.


Domestic private investment and minimum wage: an empirical discourse analysis

This research has the objective to empirically analyze the discourse about correlations between the minimum wage and domestic private investment, which has been criticized severely by the authorities, especially since the a Thai Party’s policy announcement to guarantee labors’ minimum wage at 300 baht per day.


Analysing retailing opportunities and threats using agent-based simulation

As a valuable supporting tool for the marketing analysis of opportunities and threats on retail markets, an agent-based simulator is proposed, providing insights to answer to questions such as:

- What happens in the distribution landscape if we open a new outlet? Where should it be located? What profile (assortment composition, price levels, size) the new outlet should have?
- What if competitors open or close outlets? What should we then change in the profile of our outlets?
- What if the purchasing behaviour of consumer households changes? E.g. purchasing power and decision rules changes due to economic crisis.
- What if the cost structure changes? E.g. there is easy funding of outlets in less-favoured areas by municipalities and regional authorities.


Essay: Inventory of best practices in marketing traditional food - by Valentino Piana et al.

Appropriability, Patents, and Rates of Innovation in Complex Products Industries

Stronger patent regimes yield lower rates of innovation, lower product quality and lower consumers' welfare, as the complexity of the product spaces increases.



The competitiveness of Macedonian economy: a qualitative assessment with product differentiation

International trade is key for land-locked countries to express their role in the world. In this paper, the specific condition of Macedonian economy is analysed, in a new framework that recognizes the importance of non-price competitiveness (since products relying on price as major driver have recorded a decreasing market share) and outlines the necessity of targeting sectors and supporting infrastructure (scientific and educational institutions and policies) in order to capture the benefits of quality-, knowledge- and innovation-driven global economy.




Key concepts











Product differentiation




Degree of difficulty














Key data

Industrial structures: SMEs presence in 119 countries

World market share - daily - for web browsers (2008-2012)

Look at real data about the diffusion of Explorer, Firefox, Safari and Chrome - how new versions cannibalise earlier ones or try to gain market share from competitors. Check in the original source whether your country leads or follows world dynamics.



Consumers' microdata: incomes, preferences, purchase timing

Industry-level output, employment, costs, investment, capital stocks over 38 years [4 MB]


An international comparison of 13 key indicators of innovation: the European Innovation Scoreboard (2002)


Simplified aggregate balance sheets: a time series

Application of Data Envelopment Analysis and Malmquist Productivity Index in the Norwegian passenger car market: Implications for efficiency, productivity and product variety

Small and Medium Enterprises: a large-scale survey and analysis from Cerved (2015)




To understand costs in different microeconomic production conditions, this software offers you a graphical representation of a wide variety of combination of fixed-costs and variable costs (economies of scale, dis-economies of scale...) activated by just a one-button click.

Software [2050 KB]


A specialised software to draw isoquants according to the neoclassical theory of production. A critical view of the usefulness of this tool is proposed.



Market dynamics with firm-specific fixed and variable costs

In this easy evolutionary model you'll find a market with a large number of firms, each characterised by a different cost structure, and you'll be able to study the evolution of profits over time, according to changes in demand and endogenous technology progress.

A key statement will relate the way demand interacts with the kind of technological innovation approved by top management.

Essay Software

Boom and bust behavior: on the persistence of strategic decision biases

Boom and bust are common among firms in a large range of different industries. Such dynamics occur in both traditional cyclical industries as well as industries with pronounced product and/or category lifecycles. The common managerial behavior underpinning boom and bust dynamics is aggressive capacity expansion in the boom period when demand typically outstrips supply. Aggressive capacity expansion strategies in the boom phase ultimately result in excess capacity turning the boom into bust. A combination of boundedly rational decision-making and capacity adjustment delays gives rise to boom and bust dynamics. The key statment of the paper is that firms rarely learn from boom and bust experiences, showing examples and a full-fledged explanation.


Experiment yourself in a business game: do you learn from previous booms and bursts?

"History Friendly" models of industrial evolution

"History-friendly" models are a new approach to the construction of evolutionary models based on the formalization of the essence of theories about mechanisms and factors affecting the evolution of specific industries suggested by empirical research.

They reflect the commitment to the arguments that realism should be considered as an important merit of theoretical models and that the design of formal economic models ought to proceed well informed by the empirical literature on the subject matter they purport to address.




The main determinants of technology dynamics in Tunisian manufacturing sectors

The data from the industrial survey provided by Ministry of Scientific Research, Technology and Competency Development (MSRTCD) for the period 2002-2004 is explored using regression trees and Probit models in order to discover main factors that favor the innovative capacity of Tunisian firms. Our results show that we must distinguish process and product innovations because they are driven by different mechanisms. This analysis allows us to suggest some differentiated policy indications for fostering innovative capacity in these sectors.


Consumer decision rules for agent-based models

Market dynamics depend not only from supply-side choices but also from the decision making process of consumers during the different phases of the sector life cycle. Quoted in several peer-review journals, this paper offers a micro-foundation of demand allowing for heterogenous bounded rational consumers, product differentiation, purchase repetition over time.

In particular, you shall find the rules of consumer behavour used in the freely downloadable model of free competition with bi-directional product differentiation, innovation, advertising, and finance that gave rise to these micro-data showing you the characteristichs of early adopters, late adopters, not adopters.

Moreover, it suggests to ACE modellers a "golden rule" for more realistic models.


Peer-reviewed journals quoting this paper:

1. Technovation

2. IBM Journal of Research and Development

3. European Journal of Operational Research

4. Gaming Law Review and Economics

5. ASME 2006 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference

6. International Business Information Management

Essay: The Design of Regional Innovation Systems by Georg Erber

Income distribution along the value chain: the case of Thai rice before and after a populist policy

The estimation of the structural model of how benefits are shared among rice farmers, millers, and exporters, before the policy implementation indicates a proportion of 68-2-30, whereas it becomes 17-22-61 after the implementation. After
classifying the populism policy as two different regimes of paddy pledging and rice farmer income guarantee, it is observed that the benefit sharing structural model for the paddy pledging scheme is 17-22-61, which shows a tendency to generate deeper economic inequality and unfairness than that under the rice farmer income guarantee scheme, which seems to mitigate such problem at the benefit sharing of 87-4-9. This methodology can be replicated in other value chains across the globe.



Essay: Game design as marketing: How game mechanics create demand for virtual goods (2010) - a paper quoting our key concept: product differentiation

You are a monopolist
The traditional monopolist's choice about price and quantity is now given a new dynamic setting where you can interact. Demand is unknown and the produced good is durable across periods of time. Thus, sales needn't be equal to production since inventories can pile up and go down. A lot of strategic consequences arise, as you can discover playing with the business game.


Software [1900 KB] - Essay

Psychology, Financial Decision Making, and Financial Crises (March 2010)

It is understandable in times of the current financial crisis that people ask how this could happen. Since the market actors appear irrational, it is also understandable that people lay people and experts alike believe that psychological factors play a decisive role. This article reviews, evaluates, and discusses psychological research which has the potential of increasing the understanding of both psychological antecedents and consequences of financial crises. It also provide hints for new policies and regulations.

The Performativity of Routines: Theorising the Influence of Artefacts and Distributed Agencies on Routines Dynamics by L. D’Adderio

Essay: Submarkets, Industry Dynamics, and the Evolution of the U.S. Laser Industry

Essay: How to tranfer knowledge to SMEs

Guidelines on effective knowledge and technology transfer activities to SMEs in the food sector with particular focus on traditional food manufacturers.

A path-breaking contribution from an original consortium of both trade associations and R&D providers, that delivers a far-reaching approach that should be followed in many further fields to enhance appropriate innovation and diffusion.



Technological paradigm: the new approach to industrial dynamics


The production function of students' grade

A critical introduction to the neoclassical concept of the "production function". To help students understanding the concept and its limitations, the author proposes to take into consideration a particular production process that should be well known to them: the production of grades in an exams after an education course.

Essay - Data spreadsheet

The persistence of innovation

The competitive advantage of firms depends crucially on the firm’s ability to innovate over a long period of time. This essay provides a review of literature on the subject and many new insights.


Essay series: Global value chain: governance and typologies

How Do We Define Value Chains and Production Networks

The Governance of Global Value Chains

Value Chains: An Economist's Perspective

The reference site for Global Value Chains


Interacting heterogeneous agents in finance

Behavioural finance overview (January 2006).



Essay: Survival strategies: innovate or die

To devise new modified versions earlier than expected during the product life cycle can costs you cannibalising your own product but leaves no room to competitors, thus resulting in long-term business success.


Book: Industrial Growth and Competition - The Role of Technology in Firm Success, Industry Evolution, and Regional and National Growth

Prof. Kenneth L. Simons explains in 150 pages all what you need to know about the evolution of new industries, the turnover of corporate leadership, the shakeouts and the industry dynamics linked to concentration, innovation sources, product differentiation. Firm size growth, regional agglomerations of firms, the city dynamics are mapped together with industry evolutionary patterns and evidence about the false myth of the U-Shaped long-run firm cost curve.


Author's homepage


Agent-based modelling of house market and price evolution

Deterministic and fuzzy rules for vendor/buyer agents and other human agents, such as marketing agents and financial organisations provide an extremely interesting dynamics of this complex key market. Empirical data are feed into the model and used to test it.

This excellent papers easily introduce the reader into the modelling procedures (e.g. the determination of market sentiment) and opens new ways of great interest.



Innovation science: the point of view of Industrial Engineering

An original view on innovation across several disciplines.


Prof. Andrew Kusiak homepage

A large number of relevant papers by Prof. Kusiak

The Data-Inspired Innovation Model by Andrew Kusiak and Chun-Yu Tang

Estimation of a dynamic discrete choice model of irreversible investment

A dataset of Spanish manufacturing firms provides an important empirical evidence that business investment - at micro level - is infrequent and lumpy.There are periods in which firms decide not to invest and periods of large investment episodes. Rocío Sánchez-Mangas develops and tests consider a dynamic discrete choice model of irreversible investment with a general specification of adjustment including convex and nonconvex components.

Essay [200 KB]

Macroeconomic consequences of lumpy investments can be grasped in this other paper by Dosi, Fagiolo and Roventini.



Innovation and market structure in the dynamics of the pharmaceutical industry and biotechnology: towards a history friendly model

Pharmaceuticals are traditionally a highly R&D intensive sector, which has undergone a series of radical technological and institutional “shocks”. However, the core of leading innovative firms and countries has remained quite small and stable for a very long period of time, but the degree of concentration has been consistently low, whatever the level of aggregation is considered.

These patterns of industrial dynamics are intimately linked to two main factors: first, the nature of the processes of drug discovery, i.e. to the properties of the space of technological opportunities and of the search procedures through which firms explore it. Second, the fragmented nature of the relevant markets.

This paper by Prof. Luigi Orsenigo and Prof. Franco Malerba is relevant to the understanding of this important industry as well as in terms of methodology appliable to many other sectors and evolutionary models.



The economics of ex ante coordination

Prof. Sergio Bruno and Alessandra De Lellis present in this paper a few fundamental elements of a new perspective in economics, stressing complex time structures and co-ordination issues in investment, production, consumption.

It integrates innovation theories and the earlier studies on the economic development of nations to single out overlapping issues and solutions.



Product differentiation and technological diversification

Neoclassical economics just as a change in variety of products to offset the risk of dependency on a single market. There is no consideration of how products are related to one another, no concept of firm-specific technological competences. By contrast, we recognize that a firm is composed of a set of business and a set of resources forming two separate but interrelated bases.

This paper broadens the conceptual and practical bases for firm decisions.



The impact of market structure and irreversibility on investment under uncertainty: an empirical analysis

This paper estimates a model of investment under product price uncertainty for 23 French industries during the period 1977-1997 and represents the first empirical work that includes variables of market structure (in terms of degree of competition) in a model of investment under uncertainty.

In the paper, Sara Maioli presents one of the very first attempts to make explicit the empirical relationship between investment and uncertainty under different degrees of irreversibility.


An Evolutionary Perspective on Corporate Diversification


Modeling Industrial Dynamics with Innovative Entrants by S.G. Winter, Y.M. Kaniovski, G. Dosi


High-Tech Start-Ups and Industry Dynamics in Silicon Valley

Using two unique longitudinal databases, Junfu Zhang investigates firm formation, growth, mortality, and migration in Silicon Valley during the 1990s and explain how the region evolved. After extraordinary economic and innovation success in the late 1990s, Silicon Valley entered a deep recession in 2001. This study seeks to answer tough policy-relevant and empirical questions of interest everywhere in the world.



Does Schumpeterian Creative Destruction Lead to Higher Productivity? Evidence on Entry and Exit in Portuguese Manufacturing

Productivity growth patterns have been widely discussed in the literature at both macroeconomic- and industry-level. But growth takes place in individual firms. Understanding resource reallocation at the micro level, and its relationship with industry productivity growth, are thus crucial in designing new industrial policies.

The neo-Schumpeterian models of Nelson and Winter are tested with an original and statistically representative panel of manufacturing firms covering the period 1991-2000 (annual observations).


Does innovation policy matter in a transition country?

Prof. Attila Havas demonstrates in this paper the simultaneous need for systemic institutional changes and macroeconomic stabilisation in order to improve microeconomic performance.

Whithin an evolutionary economics framework, innovation policy is examined both theoretically and empirically in the case of a country currently undergoing deep structural changes: Hungary.


A history-friendly model of the co-evolution of the computer and semiconductors industries: capabilities and technical change as determinants of the vertical scope of firms in related industries by F. Malerba, R. Nelson, L. Orsenigo, S. Winter

Schumpeter Meeting Keynes: A Policy-Friendly Model of Endogenous Growth and Business Cycles by G. Dosi, G. Fagiolo, A. Roventini

Understanding the Spanish business innovation gap: the role of spillovers and firms' absorbtive capacity by P. Lopez-Garcia and J. M. Montero

Responding to rivals and compliments: How market concentration shapes generational product innovation strategy by S. F. Turner, W. Mitchell, R. A. Bettis


Persistence in profitability and in innovative activities by E. Cefis

Dynamic competences and firm performance by Aija Leiponen

The different channels of university-industry knowledge transfer: Empirical evidence from Biomedical Engineering by R. Brennenraedts, R. Bekkers, B. Verspagen


South Korea's future engines of growth and development strategies for its main industries


Technological foresight for South Africa

Foresight is a systematic process that seeks to understand the long term. It assumes that there are many possible future scenarios and that the shape of the future we inherit depends on the decisions taken today. An important aspect of foresight is the use of qualitative as well as quantitative methods to set priorities and agree onactions. This process involves widespread consultation among all relevant stakeholders.

In South Africa, the Foresight project is being launched against a reality of declining international competitiveness, relatively low levels of R&D investment and a need to transform the national technological goals.



Integrating fishing accounting into the Italian system of national accounts

Presented by Mirko Moro at the 14th Meeting of the European Association of Environmental and Resource Economists - EAERE 2005, held in Bremen (Germany), this paper shows how the economic performance of the Italian fishing industry was affected by the depreciation of fish stock.

It's an interesting example of empirical industrial application of relevant methodologies for a "greener" GDP.



Mining Clusters and Local Economic Development in Latin America

Is a development strategy conceivable for Latin America that has the region’s abundant natural resource base as its point of departure? What would such a development strategy look like and what would be its environmental and social consequences?

The challenge seems to be to foster economic activities related to the exploitation of natural resources, through forward, backward or lateral linkages, since Latin America could not attain development by exporting commodities.



Who matters in a complex society?
Key people can change history, especially when the global system is complex and under transition. A long-term view, presented in this paper, identifies the categories of competences and individuals interpreting and prompting structural changes.





Interdependencies in the dynamics of firm entry and exit
Based on data for 25 Swedish manufacturing industries at the 2-digit SIC-level, for firms with more than five employees during the period 1991-2000, this paper estimates the determinants of industrial dynamics of entry and exit.


Domestic mergers and acquisitions

The Finnish evidence through comprehensive and micro-level data reveals that geographical closeness matters a great deal for mergers and acquisitions within a single country. This means that a great number of domestic takeovers occur within narrowly defined regions. In addition, domestic merger flows substantially reinforce the core-periphery dimension.



Towards a Theory of Technological Mismatch

In this paper, the relationship between technological change and employment is analysed through private consumption channels: technological change creates new and more consumption opportunities by means of product and process innovation. This results in changes in consumption patterns and budget shares of consumer products.

As a consequence of technological change and changing tastes, the production structure will be altered and therefore, changes in (the composition) of employment are inevitable.

By using a narrow classification of products as well as occupations, it is possible to analyse the dynamics of adjustment and technological change and their impact on the composition of employment in terms of occupations/skills.

Furthermore, obsolescence of products and skills, caused by technological change, can be related to each other by using an input-output framework.

Product choice and product switching

Three-fifths of firms alter their product mix within an industry every five years, and added and dropped products account for a substantial
portion of firm output. In the model, firms make decisions about both industry entry and product choice. Product choice is shaped by the interaction of heterogeneous firm characteristics and diverse product attributes. Changes in market conditions within an industry result in simultaneous adjustment along a number of margins, including both entry/exit and product choice.

A review of firm theories


Dynamic capabilities: What are they?

Understanding dynamic capabilities

Simulating Market Dynamics: Interactions between Consumer Psychology and Social Networks

Product differentiation or spatial monopoly? the market areas of Austrian universities in business education

An empirical analysis of the spatial origin of first year students in all Universities of Austria allows the identification of reputation, distance and market domination effects.




History of chemical engineering




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