Capability-based governance patterns over the product life-cycle: an agent-based model

Authored by B Vermeulen, A Pyka, Poutre J A La, Kok A G de

Date Published: 2018

DOI: 10.1007/s11403-016-0184-x

Sponsors: Netherlands Organization for Scientific Research (NWO)

Platforms: No platforms listed

Model Documentation: Other Narrative Flow charts

Model Code URLs: Model code not found

Abstract

In recent literature, there is disagreement over the temporal pattern of vertical governance of firms over the product life-cycle. We use a novel neo-Schumpeterian agent-based simulation model to investigate emerging patterns of vertical governance for different levels of imitability and substitutability of capabilities. We find that, in the mature phase of the product life-cycle, firms generally prefer vertical specialization. However, in the early phase, imitability and substitutability, in interplay, determine the governance form preferred. High imitability frustrates appropriation and thereby discourages integration for synergistic advantages. However, firms need not vertically specialize: under low substitutability, incompatibilities reduce the advantages of specialization. When both substitutability and imitability are low, firms can appropriate the value of their inventions and there is no combinatorial advantage of specialization, so firms predominantly integrate. If substitutability is high and imitability is low, the combinatorial advantage of specialization balances with the synergistic advantage of integration.

Tags

Agent-based model Innovation networks Modularity competitive advantage Technological-change Substitution Firm Capabilities Industry Vertical governance Imitability Substitutability Product life-cycle Vertical integration Dominant designs Discontinuities