Non-Price Competition in a Modular Economy

Bin-Tzong Chie and Shu-Heng Chen

No 1401, ASSRU Discussion Papers from ASSRU - Algorithmic Social Science Research Unit

Abstract: While 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.

Keywords: Modularity; Near Decomposability; Modular Economy; Nonprice Competition; Co-Evolving; Agent-Based Modeling (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-bec, nep-cmp, nep-com, nep-hme and nep-ind
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