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The Impact of Innovative New Economy Products on Market Competition: Competition Might Decrease

Author

Listed:
  • Arzdar Kiracı

    (Siirt University, Department of Economics)

Abstract

This paper presents a parametric Cournot type of game theoretic model that uses Rogers’ Diffusion of Innovations Theory to construct a model that simulates the strategic interaction between firms. The constructed model simulates the strategic interaction of old economy firms that compete with the adoption of an innovative information and communication technologies based product, which is produced by a monopolistic New Economy firm. The model incorporates the accelerated product innovation process, globalization and interaction of firms in competitive environment. This paper confirms the expected result that innovator firms gain by adopting profitable New Economy products; however, surprisingly, under some circumstances market competition might decrease even when there is globalization. It is proven that this result is valid for markets with large (customer) demands when firms of the New Economy that produce innovative products charge high prices for their products. Firms of the New Economy that produce innovative products are given the privilege to be monopolists for the duration of their patent, but according to the findings of this paper they need to be regulated by competition authorities.

Suggested Citation

  • Arzdar Kiracı, 2015. "The Impact of Innovative New Economy Products on Market Competition: Competition Might Decrease," EY International Congress on Economics II (EYC2015), November 5-6, 2015, Ankara, Turkey 304, Ekonomik Yaklasim Association.
    • Handle: RePEc:eyd:cp2015:304
    as

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    References listed on IDEAS

    as
    1. Salvatore, Dominick, 2003. "The new economy and growth: editor's introduction," Journal of Policy Modeling, Elsevier, vol. 25(5), pages 431-434, July.
    2. Koski, H. & Rouvinen, P. & Yla-Anttila, P., 2002. "ICT clusters in Europe The great central banana and the small Nordic potato," Information Economics and Policy, Elsevier, vol. 14(2), pages 145-165, June.
    3. Pohjola, Matti, 2002. "The New Economy: facts, impacts and policies," Information Economics and Policy, Elsevier, vol. 14(2), pages 133-144, June.
    4. B B M Shao & W S Shu, 2004. "Productivity breakdown of the information and computing technology industries across countries," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 55(1), pages 23-33, January.
    5. Dickerson, Mary Dee & Gentry, James W, 1983. "Characteristics of Adopters and Non-Adopters of Home Computers," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 10(2), pages 225-235, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Game Theory; Cost structure; New Economy; Globalization; Competition; Innovative Product;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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