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Simulating the evolution of industries using a dynamic behavioural model

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Kunc, Martin (2004) Simulating the evolution of industries using a dynamic behavioural model. In: 2004 International Conference of the System Dynamics Society, Oxford, UK, July 25 - 29. Published in: Proceedings of the 2004 International Conference of the System Dynamics Society

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Abstract

Investment decisions determine that not only the evolution of industries is hard to forecast with certainty but also industries may have different dynamic behaviour and evolutionary paths. In this paper we present a behavioural framework to simulate the evolution of industries. Two factors determine the dynamic behaviour of an industry: managerial decision-making and the interconnected set of resources. Managerial decision-making significantly affects the dynamic behaviour of firms. Bounded rational managers define rates of asset stock accumulation to achieve a competitive advantage using different mental models. However, the set of interconnected internal and external resources existing at industry level affects the expected performance of the firms. Consequently, the effect of the feedback structure existing in the industry, which consists of managers in competing firms making similar decisions over the interconnected set of resources, determines that the dynamically contingent behaviour of firms influence on the industry evolutionary paths.
In our simulations, we found that simple managerial choices, such as the definition of a market share or an expected market size, lead to diverse firm and industry performances even though management of competing firms emphasises different sets of resources required to carry out their strategy.

Item Type: Conference Item (Paper)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Divisions: Faculty of Social Sciences > Warwick Business School > Operational Research & Management Sciences
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Industrial management , Human behavior models , Leadership
Journal or Publication Title: Proceedings of the 2004 International Conference of the System Dynamics Society
Official Date: 2004
Dates:
DateEvent
2004Published
Status: Peer Reviewed
Publication Status: Published
Funder: London Business School (LBS)
Conference Paper Type: Paper
Title of Event: 2004 International Conference of the System Dynamics Society
Type of Event: Conference
Location of Event: Oxford, UK
Date(s) of Event: July 25 - 29
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