Competition and industrial policies in a 'history friendly' model of the evolution of the computer industry

In this paper, we explore some problems that industrial policy faces in ind ustries characterized by dynamic increasing returns on the basis of a 'hist ory friendly model' of the evolution of the computer industry. How does pol icy affect industry structure over the course of industry evolution? Is the timing of the intervention important? Do policy interventions have indirec t and perhaps unintended consequences on different markets at different tim es? We focus on two sets of policies: antitrust and interventions aiming at supporting the entry of new forms in the industry. The results of our simu lations show that, if strong dynamic increasing returns are operative, both through technological capabilities and through customer tendency to stick with a brand, there is little that antitrust and entry policy could have do ne to avert the rise of a dominant firm in mainframes. On the other hand, i f the customer lock in effect had been smaller, either by chance or through policies that discouraged efforts of firms to lock in their customers, the situation might have been somewhat different. In the first place, even in the absence of antitrust or entry encouraging policies, market concentratio n would have been lower, albeit a dominant firm would emerge anyhow. Second , antitrust and entry encouraging policies would have been more effective i n assuring that concentration would decrease. The leading firm would contin ue to dominate the market, but its relative power would be reduced. (C) 200 1 Elsevier Science B.V. All rights reserved. JEL classification: L10; IA; O 30; L63.