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Abstract

This paper explores the impact of technological change on industry concentration and

the underlying firm dynamics. In the agent-based model EURACE@Unibi I implement a

paradigm shift in the technological frontier – a shift from a slow to a fast growing regime.

The analysis shows that the acceleration in technological change causes a strong increase in

market concentration. The reallocation of market shares towards a few large firms is driven

by diverging productivities and skills across firms. An ex-post analysis reveals that after

the paradigm shift small, but undervalued firms become the large dominating ones in the

long-run. Their success gets initiated by a fortunate outcome on the labor market, which

increases their skill level. With the faster technological change, their high skilled workforce

incentivizes them to invest at the frontier and to build up the most productive capital stock.

A virtuous cycle between their decisions on the labor and capital market further increases

the productivity gap towards competitors enabling their rise.

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