JEL codes: D83, L11, O32,">

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Evaluating Market Attractiveness: Individual Incentives Versus Industry Profitability

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Herbert Dawid ()
Marc Reimann

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Abstract

In this paper, we employ an agent-based industry simulation model to study the effects of the interplay between individual firms’ market evaluation strategies on the extent of product innovations and overall industry development. In particular, we show that a homogenous industry consisting of companies with focus on historical profits yields high overall industry profits but is very unstable. The introduction of a single firm oriented towards market growth rather than profits is sufficient to trigger a severe drop in profits and a transformation towards an industry with strong market growth orientation and a large number of marketed product innovations. Furthermore, we show that the degree of horizontal differentiation of product innovations from existing products is of significant importance for the individual incentives to adopt market growth orientation and the effects of such a development on overall industry profits. Copyright Springer Science + Business Media, Inc. 2005

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Publisher Info
Article provided by Springer in its journal Computational Economics.

Volume (Year): 24 (2005)
Issue (Month): 4 (June)
Pages: 321-355
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Handle: RePEc:kap:compec:v:24:y:2005:i:4:p:321-355

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Related research
Keywords: agent-based simulation; innovation dynamics; JEL+codes:+D83> market attractiveness JEL codes: D83; L11; O32;

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  2. Malerba, Franco, 1992. "Learning by Firms and Incremental Technical Change," Economic Journal, Royal Economic Society, vol. 102(413), pages 845-59, July. [Downloadable!] (restricted)
  3. Jovanovic, Boyan & MacDonald, Glenn M, 1994. "The Life Cycle of a Competitive Industry," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 322-47, April. [Downloadable!] (restricted)
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  4. Bottazzi, Giulio & Dosi, Giovanni & Lippi, Marco & Pammolli, Fabio & Riccaboni, Massimo, 2001. "Innovation and corporate growth in the evolution of the drug industry," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1161-1187, July. [Downloadable!] (restricted)
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  5. Cantner, Uwe & Pyka, Andreas, 1998. "Absorbing Technological Spillovers: Simulations in an Evolutionary Framework," Industrial and Corporate Change, Oxford University Press, vol. 7(2), pages 369-97, June.
  6. Silverberg, Gerald & Verspagen, Bart, 1994. "Collective Learning, Innovation and Growth in a Boundedly Rational, Evolutionary World," Journal of Evolutionary Economics, Springer, vol. 4(3), pages 207-26, September.
  7. Malerba, Franco, et al, 1999. "'History-Friendly' Models of Industry Evolution: The Computer Industry," Industrial and Corporate Change, Oxford University Press, vol. 8(1), pages 3-40, March.
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  9. JS Armstrong & Roderick J. Brodie, 2004. "Effects of Portfolio Planning Methods on Decision Making: Experimental Results," General Economics and Teaching 0412016, EconWPA. [Downloadable!]
  10. Tesfatsion, Leigh S. & Judd, Kenneth L., 2003. "Handbook of Computational Economics, Vol. 2: Agent-Based Computational Economics," Staff General Research Papers 10368, Iowa State University, Department of Economics. [Downloadable!]
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  12. Beardsley, George & Mansfield, Edwin, 1978. "A Note on the Accuracy of Industrial Forecasts of the Profitability of New Products and Processes," Journal of Business, University of Chicago Press, vol. 51(1), pages 127-35, January. [Downloadable!] (restricted)
  13. Klepper, Steven, 1997. "Industry Life Cycles," Industrial and Corporate Change, Oxford University Press, vol. 6(1), pages 145-81.
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  16. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Klaus Wersching, 2007. "Agglomeration in an innovative and differentiated industry with heterogeneous knowledge spillovers," Journal of Economic Interaction and Coordination, Springer, vol. 2(1), pages 1-25, June. [Downloadable!] (restricted)
  2. Giorgio Fagiolo & Paul Windrum & Alessio Moneta, 2006. "Empirical Validation of Agent Based Models: A Critical Survey," LEM Papers Series 2006/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
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