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Technological change and the vertical organization of industries

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  • Tommaso Ciarli
  • Riccardo Leoncini
  • Sandro Montresor
  • Marco Valente

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.
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  • Tommaso Ciarli & Riccardo Leoncini & Sandro Montresor & Marco Valente, 2008. "Technological change and the vertical organization of industries," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 367-387, August.
    • Handle: RePEc:spr:joevec:v:18:y:2008:i:3:p:367-387
    DOI: 10.1007/s00191-008-0092-x
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    Cited by:

    1. Tommaso Ciarli & Karolina Safarzynska, 2020. "Sustainability and Industrial Challenge: The Hindering Role of Complexity," SPRU Working Paper Series 2020-18, SPRU - Science Policy Research Unit, University of Sussex Business School.
    2. Stephan Manning & Silvia Massini & Carine Peeters & Arie Y. Lewin, 2018. "The changing rationale for governance choices: Early vs. late adopters of global services sourcing," Strategic Management Journal, Wiley Blackwell, vol. 39(8), pages 2303-2334, August.
    3. Malerba, Franco & Orsenigo, Luigi, 2010. "User-producer relations, innovation and the evolution of market structures under alternative contractual regimes," Structural Change and Economic Dynamics, Elsevier, vol. 21(1), pages 26-40, March.
    4. Marco Valente, 2014. "An NK-like model for complexity," Journal of Evolutionary Economics, Springer, vol. 24(1), pages 107-134, January.
    5. Koen Frenken & Stefan Mendritzki, 2012. "Optimal modularity: a demonstration of the evolutionary advantage of modular architectures," Journal of Evolutionary Economics, Springer, vol. 22(5), pages 935-956, November.
    6. Stephan Manning & Silvia Massini & Carine Peeters & Arie Lewin, 2012. "Global Co-Evolution of Firm Boundaries: Process Commoditization, Capabilities Development, and Path Dependencies," Working Papers CEB 12-009, ULB -- Universite Libre de Bruxelles.
    7. Marco Valente, 2008. "Pseudo-NK: an Enhanced Model of Complexity," LEM Papers Series 2008/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. Michael G. Jacobides & Sidney G. Winter, 2012. "Capabilities: Structure, Agency, and Evolution," Organization Science, INFORMS, vol. 23(5), pages 1365-1381, October.
    9. Marengo, Luigi & Valente, Marco, 2010. "Industry dynamics in complex product spaces: An evolutionary model," Structural Change and Economic Dynamics, Elsevier, vol. 21(1), pages 5-16, March.
    10. Paolo Seri & Tommaso Ciarli, 2014. "Regional structural change and small firms? adaptabilities: Evidence from Italian firm-level data," Working Papers 1403, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2014.

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    More about this item

    Keywords

    Firm organization; Industrial structure; Technological dynamics; L22; D23; O32; C63;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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