Being Small at the Right Moment: Path Dependence after a Shift in the Technological Regime

Abstract

This paper explores the impact of technological change on industry concentration and the underlying firm dynamics. In the agent-based model EURACE@Unibi I implement a paradigm shift in the technological frontier -a shift from a slow to a fast growing regime.The analysis shows that the acceleration in technological change causes a strong increase in market concentration. The reallocation of market shares towards a few large firms is driven by diverging productivities and skills across firms. An ex-post analysis reveals that after the paradigm shift small, but undervalued firms become the large dominating ones in the long-run. Their success gets initiated by a fortunate outcome on the labor market, which increases their skill level. With the faster technological change, their high skilled workforce incentivizes them to invest at the frontier and to build up the most productive capital stock.A virtuous cycle between their decisions on the labor and capital market further increases the productivity gap towards competitors enabling their rise.

Concentration, Stagnation and Inequality: An Agent-Based Approach

“…Giri et al, 2019 ), the causes and consequences of rising market concentration, especially in relation with income inequality and economic stagnation, are less investigated in the macro ABM literature. Similar attempts include Hepp (2021) , who, building on the EURACE model ( Dawid et al, 2019 ), studies the impact of technical change on industry concentration and firm dynamics, and Dawid et al (2021) , who applies the EURACE model to examine the role of different degrees of centralization of the wage setting process on concentration and inequality. While these papers are close in spirit to ours, their analyses do not focus on the 'dark side' of industry concentration in terms of market power and rent extraction.…”

Distributional effects of technological regime changes: hysteresis, concentration and inequality dynamics

“…The paper is part of a growing literature applying agent-based models to macroeconomic analysis (Dawid and Delli Gatti 2018), labour markets (Neugart and Richiardi 2018) and innovation economics (Dawid 2006). Closely related is Hepp (2021), in which a similar setup is used to investigate the effect of an acceleration in technological change on firm-level determinants of the largest emerging firms. Other previous publications relying on the Eurace@Unibi model focus not only on policy analysis in different areas such as regional cohesion 2018b), banking regulations (van der Hoog and Dawid 2019), fiscal stabilization (Harting 2021), de-unionisation (Dawid et al 2021), optimal containment policies during the COVID-19 crisis (Basurto et al 2020), but also on the diffusion of competing technologies in the context of climate change (Hötte 2021) or the role of social net-works for inequality dynamics (Dawid and Gemkow 2014).…”

Distributional Effects of Technological Regime Changes: Hysteresis, Concentration and Inequality Dynamics

“…The paper is part of a growing literature applying agent based models to macroeconomic analysis (Dawid and Delli Gatti, 2018), labour markets (Neugart and Richiardi, 2018) and innovation economics (Dawid, 2006). Closely related is Hepp (2021), in which a similar setup is used to investigate the effect of an acceleration in technological change on firm-level determinants of the largest emerging firms. Other previous publications relying on the Eurace@Unibi model focus on policy analysis in different areas such as regional cohesion (Dawid et al, , 2018b, banking regulations (van der Hoog and , fiscal stabilization (Harting, 2019), de-unionisation (Dawid et al, 2021), optimal containment policies during the Covid-19 crisis (Basurto et al, 2020), but also on the diffusion of competing technologies in the context of climate change (Hötte, 2021) or the role of social networks for inequality dynamics (Dawid and Gemkow, 2014).…”