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Non-Price Competition in a Modular Economy. An Agent-Based Computational Model

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  • Bin-Tzong Chie
  • Shu-Heng Chen

Abstract

While it has been well acknowledged by economists for a long time that competition is not justabout price, the conventional quantity-based economic models have had difficulties integrating price competitionand quality competition into a coherent framework. In this paper, motivated by Herbert Simon'sview of near decomposability or modularity, we propose a quality-based economic model called the modulareconomy. In this modular economy, quality is manifested by the evolutionary design of more sophisticatedand customized products that can satisfy consumers' satisfaction to a higher degree. Two essentialfeatures 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 witha dominant or a monopoly firm (conglomerate). Second, the high-markup firm has a better chance to bethe only survivor than its low-markup competitor. We analyze these features through the complex cyclicaldynamics of prices, profits, dividends, investment, working capital, and quality.

Suggested Citation

  • Bin-Tzong Chie & Shu-Heng Chen, 2013. "Non-Price Competition in a Modular Economy. An Agent-Based Computational Model," Economia politica, Società editrice il Mulino, issue 3, pages 273-300.
  • Handle: RePEc:mul:jb33yl:doi:10.1428/75294:y:2013:i:3:p:273-300
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    Cited by:

    1. Bin-Tzong Chie & Shu-Heng Chen, 2014. "Competition in a New Industrial Economy: Toward an Agent-Based Economic Model of Modularity," Administrative Sciences, MDPI, Open Access Journal, vol. 4(3), pages 1-27, July.
    2. repec:kap:compec:v:52:y:2018:i:3:d:10.1007_s10614-017-9776-3 is not listed on IDEAS

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