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

Arzdar Kiracı
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Arzdar Kiracı: Siirt University, Department of Economics

No 304, EY International Congress on Economics II (EYC2015), November 5-6, 2015, Ankara, Turkey from Ekonomik Yaklasim Association

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.

Keywords: Game Theory; Cost structure; New Economy; Globalization; Competition; Innovative Product (search for similar items in EconPapers)
JEL-codes: C72 D42 L11 O14 O33 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2015
New Economics Papers: this item is included in nep-com, nep-cse, nep-gth, nep-ino and nep-ore
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