Analysis of Internal and External Influences on Path Creation – A Simulation Study

Path dependence is an important phenomenon in strategic management. It narrows the decision space of strategic decision making which potentially leads to inefficiency. It also causes idiosyncratic differences between firms and therefore heterogeneity in the capability and resource endowment of firms which could be beneficial in competition. Sizing the later line of argumentation, paths could be valuable for companies and path creation an important strategic task. While path dependence and creation have been conceptually explored, it is difficult to study them empirically. Using computational modeling and experimentation we further develop the conceptualization of path dependence and creation. Our model analyzes the effects of internal factors – self-reinforcing learning effects – and external factors – environmental dynamic – on the performance of path dependent and flexible decision makers.