4 Technological change and industrial structure

4.1 Introduction

This section will explore the interaction of technology and costs with market demand in shaping industrial structure throughout the industry life cycle. Many industries begin as a numerous and turbulent group of firms jostling for position, experimenting with new and idiosyncratic products, and turn into a much smaller, more stable number of firms, making standardised products by routine methods. In this section we add a rather different view of firms to that developed in Section 3, modelling firms as dynamic agents engaged in a learning process and an active search for technological innovation. The term ‘dynamic’ signifies that the model constructs firms and industries as acting and undergoing change in historical time. The technology available to firms is no longer being assumed to be given from outside the firm. The industry life cycle, outlined in Section 4.2, provides a theoretical framework for identifying general patterns of structural change across different industries. Section Section 4.3 discusses some additional concepts used in modelling the dynamics of industrial structure.