Innovation, technological regimes and organizational selection in industry evolution: a 'history friendly model' of the DRAM industry

Abstract

The paper explores the complex relationship among innovation, technological regimes and selection of the firms of different organizational forms in the evolution of an industry. For this purpose, this paper develops a ‘history‐friendly’ model for the dynamic random access memory industry that replicates the history of the industry by simulation. The shift of industry dominance by small, specialized (SS) firms to large, diversified (LD) firms is explained by the technological regimes of the industry, characterized by low cumulativeness and strong impact of innovation on productivity increase. The simulation analysis also found the following causal relationship underlying the evolution of the industry. First, the stronger innovation impact in terms of productivity jump tends to enlarge the productivity difference among the incumbent firms and increase the speed of productivity catch‐up by the LD firms. Second, the possibility of entry and eventual dominance by the LD firms increase when the innovation–productivity linkage is stronger and there is less cumulativeness in productivity determination.