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    Question 7

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    Nguyen Thi Kim Nhung
    As an industry matures: 1) The structure of industrial organization changes, often forming oligopolies as firms focus more on increasing productivity than innovation. 2) The pace of innovation declines, shifting from radical innovations when the industry is new to more incremental improvements focused on costs as the industry reaches maturity. 3) Firms concentrate on developing cost-effective production routines and maintaining stable organizational environments to implement them, as innovation becomes more difficult and costly in mature industries with standardized products.

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    Question 7

    Uploaded by

    Nguyen Thi Kim Nhung
    32 views3 pages
    As an industry matures: 1) The structure of industrial organization changes, often forming oligopolies as firms focus more on increasing productivity than innovation. 2) The pace of innovation declines, shifting from radical innovations when the industry is new to more incremental improvements focused on costs as the industry reaches maturity. 3) Firms concentrate on developing cost-effective production routines and maintaining stable organizational environments to implement them, as innovation becomes more difficult and costly in mature industries with standardized products.

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    As an industry matures: 1) The structure of industrial organization changes, often forming oligopolies as firms focus more on increasing productivity than innovation. 2) The pace of innovation declines, shifting from radical innovations when the industry is new to more incremental improvements focused on costs as the industry reaches maturity. 3) Firms concentrate on developing cost-effective production routines and maintaining stable organizational environments to implement them, as innovation becomes more difficult and costly in mature industries with standardized products.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    32 views3 pages

    Question 7

    Uploaded by

    Nguyen Thi Kim Nhung
    As an industry matures: 1) The structure of industrial organization changes, often forming oligopolies as firms focus more on increasing productivity than innovation. 2) The pace of innovation declines, shifting from radical innovations when the industry is new to more incremental improvements focused on costs as the industry reaches maturity. 3) Firms concentrate on developing cost-effective production routines and maintaining stable organizational environments to implement them, as innovation becomes more difficult and costly in mature industries with standardized products.

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    © All Rights Reserved
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    7. How do patterns of industrial organization change as industries mature?

    What
    happens to the pace of innovation in an industry as it matures?
    In economics, industrial organization is a field that builds on the theory of the firm by
    examining the structure of (and, therefore, the boundaries between) firms and markets.
    Industrial organization adds real-world complications to the perfectly competitive model,
    complications such as transaction costs,[1] limited information, and barriers to entry of new
    firms that may be associated with imperfect competition. It analyzes determinants of firm and
    market organization and behavior as between competition[2] and monopoly,[3] including from
    government actions. Industrial Organization is the economic field that studies the
    strategic behaviour of firms, and their interaction to determine the structure of
    markets.
    An industry is a complex system with open to environment. As industry mature, new
    connections are established and the change in the industrial organization can lead to the
    establishment of new connection. Different ideas about the patter of industrial organization as
    industries mature.
    Schumpeter:
    From Schumpeters point of view, technical progress comes from a process of creative
    destruction, in which innovations make prior technology out-dated and originate from the
    innovative entrepreneur. Monopolies have a positive consideration, as they carry out the
    function of promoting innovation and investments, and government intervention should
    guarantee both of these. Monopoly power is likely to be short lived as competition is based
    on technological superiorty as well as price an on going process of creative destruction. He
    argues that technological innovation often creates temporary monopolies, allowing abnormal
    profits that would soon be competed away by rivals and imitators. These temporary
    monopolies were necessary to provide the incentive for firms to develop new products and
    processes http://www.policonomics.com/industrial-organization/

    Burton Kleins view (Dynamic Economics, 1977)

    _A lot of entry and exit as firms experiment aggressively in the hope of getting the rewards of
    becoming a major player
    _ Industries tend to evolve into oligopolies that are much less innovative they can readily
    copy each others innovations so instead they concentrate on increasing productivity,
    increasing organizational capability at the expsense of innovation capability
    _Major change comes from outside, if it occurs
    Along with the change in the structure of the market, the market institution also changes as
    industries mature. Rise of trade association that help create industrial standards and lobby
    governments for protection and other helpful policies. Rise of specialized trade press,
    industrial exhibitions and congresses: spread of knowledge, signaling to rivals and
    consumers. Rise of comparison websites, product reviews that assist customers, adding to
    competitive pressure. Rise of market intermediaries.
    Pace of innovation in an industry as it matures:
    Why need innovation: Evolutionary economists do not see firms as having much scope for
    achieving a state of rest. Competition is a dynamic process involving the rise and fall both of
    products and firms. Firms make innovation to survive and to become market leader in the
    market.
    Innovation does not just cover basic and applied research, but also includes product
    development, production, marketing, distribution and even product adaptations and
    improvements. There are radical and incremental innovations. Radical innovation exploit new
    technology, focus on processes, products or services with unprecedented performance feature,
    create dramatic changes that transform existing market or create new one. Incremental
    innovation exploit existing technology, focus on cost or feature improvement in existing
    products or services, improve competitiveness within current market of industries.
    Stage 1: A new industry is born when someone introduces new knowledge in the form of a
    product that has not been seen before. The introduc1on of this brand new product is an
    example of radical innovation. At this stage production systems need to be flexible because of
    uncertainty about technologies and customer acceptance.

    Stage 2: Emergence of a dominant design -- a product which embodies a particular


    combination of features and technologies in such a way that it meets consumer wants/needs
    in a relavtively complete manner.
    Stage 3: reduction in the number of radical product innovation in the industry in favour of
    performance enhancing incremental product innovations.At this stage, Produc1on systems
    have less need for flexibility and as sales start depending more on offering a compe11ve
    product rather than getting the basic concept right, keeping production costs down becomes
    more important investment in more specialized machinery.
    Concentration on developing cost effectiveness routine and maintain a stable organizational
    environments in which to implement them. In the specific phase, an industry has entered its
    maturity phase and the value of the quality / cost ratio becomes the basis for competition.
    Innovations to the product are incremental, while improvements to quality and productivity
    are cumulative. Any modification to either process or product is both difficult and costly.
    Processes are automated and generally make use of specialized equipment. The
    organizational structure is based upon clearly defined tasks and procedures. There are few
    companies, producing standardized or slightly differentiated products, or commodities, which
    enjoy stable sales and market shares (oligopolies). The pace of innovation, whether for the
    process or the product, tends towards zero.

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