Transformation of iIndustrial policy towards iIndustry 4.0 and its impact on firms' competition

Abstract

While Europe is at the doorstep of a new industrial revolution known as Industry 4.0, many believe that it will bring about a surge in production flexibility, mass adaptability of products to consumers, and their service speeds; it will also improve products quality and boost productivity dramatically. However, as expected, all the benefits of Industry 4.0 come together with many unavoidable changes and challenges they entail. One of them is an inevitable transformation of current competition and business models. This paper examines possible outcomes of competition conversion from the classic Bertrand and Cournot models to qualitatively new competition, based on innovation, i.e., the ability to deliver a new product quickly); the ability to produce customized designs (via flexible and fast-configurable factories); reduction of equipment failures with increasing automation and control of processes. This research shows that the ongoing transformation of the competition model is game-changing. It comes together with the creation of complex value networks, huge investments that are especially burdensome for small and medium-sized enterprises. Also, ongoing data digitalization raises new concerns in terms of legal obligations, intellectual property, and security.