A history-friendly model of the successive changes in industrial leadership and the catch-up by latecomers

Abstract

Successive changes in industrial leadership between both firms and countries (described here as catch-up cycles) have been common in several sectors. This article develops a history-friendly model to explore the role played by technological conditions in the emergence of such leadership changes. The model is inspired by two cases where the emergence of disruptively novel technology played an important role: mobile phones and semiconductors. In the baseline setting the model is able to generate the benchmark case of three cycles with two leadership changes. In particular, the simulation analysis reveals that: (a) the more disruptive the new technology and the lower the incumbents’ capabilities, the greater the shake-up of market shares between incumbents and latecomers; (b) leadership change is more likely to occur when it coincides with certain responses by the actors to the technological disruption, such as a high lock-in behaviour on the part of incumbents; and (c) a technology-driven change of industrial leadership is more likely to occur in the presence of increasing returns to technological investments. The counterfactual experiments show that different catch-up dynamics can emerge depending on the magnitude of technological disruption, the degree of lock-ins, the shape of technological landscape, and incumbents’ initial capabilities. In particular, four other types of catch-up cycle are generated – the aborted cycle, persistent leadership, return of the old leadership, and coexistence in leadership between latecomers and incumbents. Each of these cycles is identified with a specific historical case of catch-up.