Lecture 3 - Innovation dynamics and the evolution of industries


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Lecture 3 - Innovation dynamics and the evolution of industries

  1. 1. Lecture 3: Innovation dynamics and the evolution of industries
  2. 2. From the production process to technology • There is a long tradition of research technological change which starts with a simple assumption. The characteristics of the production process have a major impact on technological opportunities and innovation dynamics in the long run. • We can trace this back in Political Economy [division of labour, size of markets, technology as an input to production, learning by doing, different rates of productivity growth at the sectoral level]–thus part of the list of readings today is dedicated to these writings. • A recent UNIDO report brings up to date these arguments.
  3. 3. Innovation, Industrial Dynamics and Industrial Evolution • Industrial dynamics: market structure, entry- growth-decline of firms • Industrial evolution: knowledge,capabilities, institutions and other actors facilitating industrial change
  4. 4. Firms in 2-digit classes are usually not competing directly, due to the emergence of niche markets
  5. 5. Factors in Industry and Product Life Cycles: Areas to look for data • Product/process innovation • Rate and type of entrants • Profile of the selection process • Firm size and growth • Market concentration • Market niches • Shake outs
  6. 6. Two basic insights from the literature • The relationship between innovation and industrial change has many dimensions, involves several actors, has periods of uncertainty (radical innovation), periods of incremental change and differs greatly across sectors (SPRU). • A large number of industries follow a life cycle: Radical Innovation..new products..demand growth…shift of emphasis to process innovation..selection process..concentrated markets. These trajectories are different from sector to sector.
  7. 7. Four areas of research findings-1 • Drawing on the increasing availability of firm level data, researchers have pointed out stylized facts and statistical regularities. – Sectoral diversity in firm size distribution – Labour productivity differences across firms – Persistence of profitability – Heterogeneous firm-specific profiles within industries
  8. 8. Heterogeneity and its persistence • Firms differ even within very narrowly defined business lines under most measures of structure and performance: – Size – Growth – Productivity – innovativeness • These differences tend to persist over long periods of time: no convergence to an average • The dynamics of an industry is significantly driven by outliers
  9. 9. Four areas of research findings-2 • Heterogeneity of firms innovativeness. – In most industries there are few firms which are responsible for a large number of innovations (different capabilities, different routines). – Heterogeneity is related to entry. We have high rates of entry after technological discontinuities (new firms have higher rates of productivity also)
  10. 10. Four areas of research findings-3 • Inter-sectoral differences of the rate of technical change, market structure and organization of innovative activity. – First pattern: few innovators, stability, new innovators are rare – Second pattern: wide population of innovators, high turbulence in innovative activity, large population of new innovators
  11. 11. Four areas of research findings-4 • The role of institutions in industrial evolutions (universities, Venture Capital, other supporting institutions) – Firms are not the only actors in the innovation process. Technological change is the result of contribution of different actors.
  12. 12. A list of stylized facts • Production increases in the initial phase of the development of industry – then declines • Numerous entries in the beginning • Exceeded by exits over time • Market shares are highly volatile in the first steps – stabilize latter • From product innovation to process innovation • First movers generally enjoy long-term leadership • Dominant design ----process of standardization
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