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. Within the agent-based model EURACE@Unibi, it is shown that an exogenous acceleration in technological change in the capital goods sector leads to a diverging firm population in the downstream consumption goods sector in terms of productivities and skills and in turn also to a higher market concentration. A novel ex-post analysis at the micro level shows that the later dominant firms were relatively small at the beginning but benefited from a virtuous cycle between their capital choice and the skill level within their workforce that is initiated by a fortunate outcome on the labor market.