Article

User-producer relations, innovation and the evolution of market structures under alternative contractual regimes

Structural Change and Economic Dynamics 01/2010; 21(1):26-40. DOI: 10.1016/j.strueco.2009.11.007
Source: RePEc

ABSTRACT 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.

0 Bookmarks
 · 
104 Views
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper compares the efficiency of two information structures of the firm in coordinating operational decisions among technologically-interrelated constituent units (shops) whose costs are uncertain. The structures compared are a hierarchical one in which the capability of management to monitor and respond to emergent events at the shop level is bounded; and a horizontal one inwhich production decisions are coordinated among shops without the centralization of information, but the capability of semiautonomous problem-solving by component units im proves over time through learning-by-doing and better uses of on-the-spot knowledge. A comparison of Japanese and American practices precedes the analysis. Copyright 1986 by American Economic Association.
    American Economic Review 02/1986; 76(5):971-83. · 2.69 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: Analyzes how successful firms fail when confronted with technological and market changes, prescribing a list of rules for firms to follow as a solution. Precisely because of their adherence to good management principles, innovative, well-managed firms fail at the emergence of disruptive technologies - that is, innovations that disrupt the existing dominant technologies in the market. Unfortunately, it usually does not make sense to invest in disruptive technologies until after they have taken over the market. Thus, instead of exercising what are typically good managerial decisions, at the introduction of technical or market change it is very often the case that managers must make counterintuitive decisions not to listen to customers, to invest in lower-performance products that produce lower margins, and to pursue small markets. From analysis of the disk drive industry, a set of rules is devised - the principles of disruptive innovation - for managers to measure when traditional good management principles should be followed or rejected. According to the principles of disruptive innovation, a manager should plan to fail early, often, and inexpensively, developing disruptive technologies in small organizations operating within a niche market and with a relevant customer base. A case study in the electric-powered vehicles market illustrates how a manager can overcome the challenges of disruptive technologies using these principles of disruptive innovation. The mechanical excavator industry in the mid-twentieth century is also described, as an example in which most companies failed because they were unwilling to forego cable excavator technology for hydraulics machines. While there is no "right answer" or formula to use when reacting to unpredictable technological change, managers will be able to adapt as long as they realize that "good" managerial practices are only situationally appropriate. Though disruptive technologies are inherently high-risk, the more a firm invests in them, the more it learns about the emerging market and the changing needs of consumers, so that incremental advances may lead to industry-changing leaps. (CJC)
    01/1997; Harvard Business School Press.
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: The vertical scope of a firm, that is, which components or segments of the production processes are kept in–house and which are outsourced, is variously considered as depending on cost and/or technological conditions. Most of the literature focuses on the incentives for an individual firm facing exogenous competition and technological opportunities. In this paper we consider the problem from the perspective of the whole industry: in what respect does firm organizational behavior depend on the industry technological evolution and aggregate structure, and how does innovation and organizational behavior affect the industry structure. We build an evolutionary simulation model of an industry where competitors decide the number of internally produced components. We relate the industry average value of market outsourcing to the technological conditions prevalent in the industry. The results from the model shed light on a number of (apparently) contradictory suggestions in the economic and management literature.
    Journal of Evolutionary Economics 08/2008; 8(3-4):367-387. · 1.00 Impact Factor

Full-text (2 Sources)

View
67 Downloads
Available from
Jun 4, 2014