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Plan versus Market Explanations in Computer Industry (6)

Equally important is a country’s managerial culture, which may or may not be well suited to the fast-changing, highly competitive computer industry. A country will ultimately succeed in computers to the extent that its domestic companies succeed or it is able to attract investment from successful foreign multinationals.

Path Dependencies. This refers to the development trajectories created by the acts of individual companies (or entrepreneurs) and countries, which become locked-in or amplified, leading to particular specialization patterns over time. A firm that has a first mover advantage, however small, may amplify that advantage into total market dominance.

Similarly, a country that has a first mover advantage, however small, in attracting firms to engage in a particular computer sector, such as disk drive manufacturing, may become even more attractive to other firms engaged in similar or related activities (suppliers of materials, parts, subcomponents).

Increasing versus Decreasing Returns. Closely related to the notion of path dependency is the concept of increasing and decreasing returns to scale. While the neoclassical models that have dominated economics for decades have assumed decreasing returns to scale (at least beyond some level of production), a number of scholars have argued in recent years that increasing returns not only exist, but are important drivers of economic growth.

In the case of standards-based competition, there is a tendency toward winner-take-all outcomes, as over time both users and creators of complementary assets such as software migrate to the standard that has the largest user base.

However, while some segments of the industry, such as operating systems and microprocessors, are classic increasing-returns industries, much of the industry still operates under the traditional conditions of decreasing returns. This distinction is important in analyzing competition among both companies and countries.

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