Evolution and Diversity in an Industry Model with Localized Learning and Network Externalities
Abstract
We extend the model of Nelson and Winter with a lattice--based spatial structure in order to study the effects of localized learning and increasing returns to adoption on the emergence and persistence of technological diversity. We show that an intermediate level of localization of learning can effectively be a source of diversity. Network effects give rise to the lock-in effect even if the technology set is endogenously modified by innovations. Combination of localized learning and network externalities can nevertheless imply a greater diversity compared to Nelson and Winter's model.