Innovation Dynamics and Industry Structure Under Different Technological Spaces

The paper presents an Agent-Based theoretical model to analyze the reciprocal influence between industry structure and industry innovation patterns. This topic was originally investigated through the famous models of Schumpeterian Competition developed by Nelson and Winter (1977; 1982; 1984). However, these models did not provide any insight about the direction of firms' innovative activity, and lacked an explicit structure governing firms interactions and the shape of externalities. On the contrary, the empirical Evolutionary literature has suggested that these aspects, and the features of the technological system characterizing a specific industry, are relevant in shaping sectoral patterns of innovation and the industry evolution process. Our model addresses this issue by taking explicitly into account different characterizations of the ‘technological space' within the industry, each one being represented as a directed network where each node constitutes a batch of technological skills to be learned by firms. The model shows that firms' ability to imitate competitors generates spillover effects whose dimension depends on the topological structure of the industry technological space. In turn, these spillovers exert a significant impact on the process of Schumpeterian Competition, thus affecting industry performance and industry structure