The evolution of industries based on systemic technologies does not always conform to the evolutionary patterns captured by dynamic models of industry evolution featuring endogenous relationship between market structure and firm investment strategies. These models purporting to explain the dynamics of intra-industry competition predominantly focus on the co- evolution of underlying technology and competing firms' idiosyncratic technological competences. In a significant departure from "technology-centric" explanations of evolution of such industries this paper provides an alternate explanation of how firms' demand-side investments strategies — determined by a dynamically evolving context represented by demand-side determinants of market-structure — influence the evolution of industrial market structure.
A dynamic evolutionary model captures an analytically tractable case of demand competition wherein firms offering heterogeneous bundles of complements — supported by a common underlying technological system — compete to satisfy idiosyncratic consumer demand for a heterogeneous bundle of attributes. Firms' temporally heterogeneous demand-side investments correspond to their idiosyncratic and dynamically evolving demand-side competences, which in turn explain the evolution of intra-industry heterogeneity under the assumed structural conditions of stationary technology and policy environment. More specifically, while the static competence effect explains the distribution of market-share at any period the dynamic competence effect explains the distribution of the growth in market share over the last period. The model allows developing a set of testable propositions amenable to panel data analysis of typical competitive conditions along the evolutionary path of industries based on systemic technologies.
Contact Lalit Manral at [email protected] for a copy of the manuscript.