'History-friendly' models of industry evolution: the computer industry

Abstract

The model presented in this paper is the first of a new generation of evolutionary economic models: 'history-friendly' models. History-friendly models are formal models that aim to capture, in stylized form, qualitative and 'appreciative' theories about the mechanisms and factors affecting industry evolution, technological advance and institutional change put forth by empirical scholars of industrial economics, technological change, business organization and strategy, and other social scientists. In this paper we have analyzed the long-term evolution of the computer industry. In particular we have examined the emergence of a dominant firm in mainframes, the introduction of a major innovation (microprocessor), the opening up of a new market segment (personal computers), ad the competition there between newcomers and diversified old established firms. We have taken a body of verbal appreciative theorizing, developed a formal representation of that theory, and found that the formal version of that theory is consistent and capable of generating the stylized facts the appreciative theory purports to explain. Going through this analytic exercise has significantly sharpened our theoretical understanding of the key factors behind salient aspects of the evolution of the computer industry.