Friday, September 23, 2011

Audiences, Firms, and Networks: A Simulation Study of the Emergence of New Industries
INSEAD Working Paper 2011/98/EFE

During industry emergence, collective actors may not yet exist as a mechanism for coordination. To explore whether informal network ties might fill this void, we develop an ecological model of new industries. Using simulation methodology, we obtain the following results: First, network ties increase the number of surviving firms and total industry resources. Second, the effects of network ties are of similar magnitude to those of legitimacy and resources. Third, we discover the paradox of big bets: When audience members allocate more of their resources to single firms, population size is decreased but total industry resources are increased. Finally, we discuss practical implications of our findings for policy makers who wish to encourage new industries and entrepreneurs in nascent fields.