A central debate in industrial policy today is that between proponents of large vertically integrated firms on the one hand and advocates of networks of small specialized producers on the other. This paper argues that neither institutional structure is the universal panacea its enthusiasts...

Institutional factors, especially those embodied in capabilities and routines, can both improve the ability of a firm to exploit an existing technology and make it more difficult to innovate by generating an inertia that is hard to overcome. As a result, periods of technological change are often...