Non-Price Competition in a Modular Economy
AbstractWhile it has been well acknowledged by economists for a long time that competition is not just about price, the conventional quantity-based economic models have difficulties integrating price competition and quality competition into a coherent framework. In this paper, motivated by Herbert Simon’s view of near decomposability or modularity, we propose a quality-based economic model called the modular economy. In this modular economy, quality is manifested by the evolutionary design of more sophisticated and customized products that can satisfy consumers’ satisfaction to a higher degree. Two essential features of the modular economy are founded through the agent-based simulation of a duopolistic competition. First, market competition tends to be self-annihilating; the competition will eventually end up with a dominant or a monopoly firm (conglomerate). Second, the high-markup firm has a better chance to be the only survivor than its low-markup competitor. We analyze these features through the complex cyclical dynamics of prices, profits, dividends, investment, working capital, and quality.
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Bibliographic InfoPaper provided by ASSRU - Algorithmic Social Science Research Unit in its series ASSRU Discussion Papers with number 1401.
Date of creation: 2014
Date of revision:
Modularity; Near Decomposability; Modular Economy; Nonprice Competition; Co-Evolving; Agent-Based Modeling;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-06-07 (All new papers)
- NEP-BEC-2014-06-07 (Business Economics)
- NEP-CMP-2014-06-07 (Computational Economics)
- NEP-COM-2014-06-07 (Industrial Competition)
- NEP-HME-2014-06-07 (Heterodox Microeconomics)
- NEP-IND-2014-06-07 (Industrial Organization)
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.:
- Bin-Tzong Chie & Shu-Heng Chen, 2003. "A Functional-Modularity Approach to Preferences," Computing in Economics and Finance 2003 107, Society for Computational Economics.
- Binmore, Ken & Samuelson, Larry, 1999. "Evolutionary Drift and Equilibrium Selection," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 363-93, April.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
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