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This paper aims to explain how the dynamic demand environment influences strategic firm behavior along an industry’s evolutionary path. A conceptual gap concerning the influence of demand-side environmental factors (vis-à-vis changes in technology and policy) on firms’ strategic choices motivates the theory developed herein. The paper’s contribution to the literature on “evolutionary perspective in strategy” also addresses an important gap in the emerging literature on “strategy dynamics”.

The conceptual framework in this paper features a dynamic demand environment that provides the structural context for firms’ strategic choices. It conceptualizes demand-side competence as a mediating firm-specific construct to explain the endogenous relationship between the characteristics of the demand environment and firms’ path dependent demand-side investments.

A review of the literature on evolutionary perspective in strategy reveals an important conceptual gap concerning the structural determinants of dynamic firm behavior. There is no explanation of the endogenous relationship between dynamic demand structure, firms’ dynamic demand-side competence, and temporally heterogeneous strategic choices.

The demand-side explanation of how idiosyncratic firm behavior is endogenously determined, with both structural characteristics (demand structure) and firm competences (demand-side competence), addresses an important conceptual gap. The novelty of the theory developed herein lies in its explication of the effect of dynamic demand environment on the evolution of idiosyncratic strategic firm behavior – entry, investment and exit – along the evolutionary path of an industry. The theory developed herein not only explains the effect of both determinants of idiosyncratic strategic firm behavior – the external industry environment (dynamic market structure) and internal firm environment (dynamic firm competences) – but also explains how the determinants evolve along the industry’s lifecycle.

The thought and rationale of sustainable competitive advantage in strategy are significantly influenced by the Schumpeterian models of dynamic competition in IO and evolutionary economics. Yet, most analytical accounts of sustainable competitive advantage fail to explain how firms' investment choices influence, and are simultaneously influenced by, the co‐evolution of “external” industry competition and “internal” firm competences. This paper aims to contribute to the development of a theory of endogenous market structure in strategy.

Two alternative assumptions are developed – concerning temporally heterogeneous firm investment strategy – that lie central to a proposed behavioral theory of endogenous market structure. Additionally, a theoretical description is provided of the endogeneity of the demand‐side determinants of firm investment strategy and industrial market structure. Finally, guidelines are provided for empirical application of [incorporating] the alternative assumptions and theoretical arguments.

It is expected that the theoretical arguments in the paper will influence strategy scholars to develop dynamic models of firm performance that render themselves amenable to sound empirical analyses.

The paper contributes towards developing a theory of endogenous market structure in strategy.

The extant “supply‐side” frameworks of industry evolution fail to predict the evolutionary patterns in industries based on systemic technologies. This paper aims to describe the complex demand environment in industries based on systemic technologies and to explain how the continuously evolving demand structure influences the choice and level of firm investments in the above context.

The paper identifies a conceptual gap in the “technology‐centric” literature on industry evolution by conducting a detailed interpretive survey of the literature that focuses on the demand‐side determinants of firm‐ and industry‐level technological processes underlying industry evolution, and co‐evolution of the technological system underlying an industry and the consumer applications based on the same.

The paper provides a set of empirically verifiable mechanisms to explain competing firms' choice and level of investment under conditions of technological and demand uncertainty in industries based on systemic technologies. On one hand, firms' investments influence the evolution of both the technological system(s) and their constituent components that underlie such industries and, on the other, firms' investments influence the consumption of the array of consumer applications that are generated in these industries.

The theoretical explanation provided herein not only enhances the understanding of the role of demand‐side factors as determinants of rate and direction of technological advances but also lies central to the understanding of the evolution of industries based on systemic technologies. More specifically, the paper explains how the interaction between continuously evolving demand structure in the downstream market(s) for consumer applications and the technological components comprising the technological system influences competing firms' choice and level of investments.

The relevance of finance for strategy is probably never greater than during a recession. We argue that the strategy literature has been virtually silent on the issue of recessions, and that this constitutes a regrettable sin of omission. Recessions are also periods when the commonly held view of financial markets in the strategy literature – efficient, and therefore strategically irrelevant – is particularly misplaced. A key route to rectify this omission is to focus on how recessions affect investment behavior, and thereby firms’ stocks of assets and capabilities which ultimately will affect competitive outcomes. In the present chapter, we aim to contribute by analyzing how two key aspects of recessions, demand reductions and reductions in credit availability, affect three different types of investments: physical capital, R&D and innovation, and human- and organizational capital. We synthesize and conceptualize insights from finance- and macroeconomics about how recessions affect different types of investments and find that recessions not only affect the level of investment, but also the composition of investments. Some of these effects are quite counterintuitive. For example, investments in R&D are both more and less sensitive to credit constraints than physical capital is, depending on available internal finance. Investments in human capital grow as demand falls, and both R&D and human capital investments show important nonlinearities with respect to changes in demand.

“Economics is a Serious Subject.” Edwin Cannan.

To promote the development of renewable energy, the Chinese Government adopts the policy of Feed-in Tariff and subsidy. However, the high purchase price and the intermittence limit the development of renewable energy source electricity (RES-E). The purpose of this paper is to discuss the pricing strategy for system operators to stimulate the development of the RES-E industry under the scenario of uncertain supply and demand.

The authors establish a two-echelon supply chain investment model led by a power grid operator considering the uncertainties in both demand and supply, and study the impact of the power purchase price designed by a system operator using Stackelberg’s model.

There is an optimal capacity for RES-E generators, that is, independent of the market demand. Besides, the optimal order of grid operators is independent of the uncertain RES-E supply and the purchase price of fossil fuel. By properly setting the purchase prices, the system operator can stimulate the capacity investment in renewable energy. Finally, increasing the punishment in power shortage can stimulate the capacity investment in RES-E under certain conditions.

The result of this paper can mitigate the phenomenon of power abandonment in the RES-E industry and promote the grid integration of RES-E.

Both uncertain demand and supply are considered in this paper. A heuristic algorithm is provided to compute the optimal purchase price combination.

The tension between demand for services and willingness to pay for those services, referred to here as tax-demand discontinuity, poses a dilemma for local government that will only intensify with growing fiscal constraints. This research is based on a survey of over 1800 citizens in Orange County, Florida, the county including Orlando, to develop a seven-position classification system to define the nature and extent of tax-demand discontinuity. Citizen demographic characteristics, perceptions of the economy and perceptions of government segmented by tax-demand discontinuity classifications are used to offer guidance to local government about opportunities for improving citizen-government relations.

This paper introduces a hitherto unpublished 1970 paper written by Lauchlin Currie (1902–1993) on Paul Rosenstein Rodan’s famous 1943 paper on the “Big Push” which led to the balanced-unbalanced growth debate to which Albert Hirschman (1915–2012) was an important contributor. Both Currie and Hirschman had been key economic advisers to the Colombian government, and their respective views on development planning are contrasted. In particular, it is shown how Currie’s 1970 paper illuminates the theory behind the 1971–1974 national plan for Colombia that he prepared and helped deliver; and how the related institutional innovations have had an enduring impact on Colombia’s recent economic history.