Kochanski, Tim (2009): "An Agent Based Cournot Simulation with Innovation: Identifying the Determinants of Market Concentration".
Download (592Kb) | Preview
In this paper, I develop a hybrid model that contains elements of both agent based simulations (ABS) as well as analytic Cournot models, to study the effects of firm characteristics, market characteristics, and innovation on market concentration, as measured by a Herfindahl-Hirschman Index (HHI). The model accommodates the following components: multiple firms with heterogeneous marginal costs, market entry and exit, barriers to entry, low or high cost industries, changing demand, varying levels of marginal cost reducing returns-to-innovation, varying costs associated with innovation, increased returns to innovation from past experience innovating, and varying propensities to innovate within the market. The components mentioned above are commonly cited as determinants of market concentration. A sensitivity analysis which is robust to high degrees of model complexity demonstrates that the model provides results that are consistent with economic theories of markets.
|Item Type:||MPRA Paper|
|Original Title:||"An Agent Based Cournot Simulation with Innovation: Identifying the Determinants of Market Concentration"|
|Keywords:||agent based simulation, Cournot, game, innovation, oligopoly|
|Subjects:||C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C79 - Other
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
|Depositing User:||Tim Kochanski|
|Date Deposited:||03. Aug 2009 05:47|
|Last Modified:||13. Feb 2013 20:45|
T. Brenner, "Simulating the Evolution of Localised Industrial Clusters - an Identification of the Basic Mechanisms," Journal of Artificial Societies and Social Simulation, vol. 9, 2001.
F. Malerba, et al., "History-Friendly models: An overview of the case of the Computer Industry," Journal of Artificial Societies and Social Simulation, vol. 4, 2001.
J. Pajares, et al., "Industry as an Organisation of Agents: Innovation and R&D Management," vol. 6, 2003.
S. Athey and A. Schmutzler, "Investment and market dominance," Rand Journal of Economics, vol. 32, pp. 1-26, SPR 2001.
P. Aghion, et al., "Competition, Imitation and Growth with Step-by-Step Innovation," in Recent developments in growth theory. Volume 2. Theory, ed: Elgar Reference Collection. International Library of Critical Writings in Economics, vol. 179; Cheltenham, U.K. and Northampton, Mass.:; Elgar, 2004, pp. 314-339.
J. S. Vickers, "The Evolution of Market Structure When There Is a Sequence of Innovations," Journal of Industrial Economics, vol. 35, pp. 1-12, 09 1986.
T. C. Price, "Using Co-evolutionary Programming to Simulate Strategic Behaviour in Markets," Journal of Evolutionary Economics, vol. 7, pp. 219-254, 1997.
J. Barr and F. Saraceno, "Cournot competition, organization and learning," Journal of Economic Dynamics & Control, vol. 29, pp. 277-295, JAN 2005.
G. I. Bischi and M. Kopel, "Equilibrium selection in a nonlinear duopoly game with adaptive expectations," Journal of Economic Behavior & Organization, vol. 46, pp. 73-100, SEP 2001.
S. Kimbrough, et al., "Learning and Tacit Collusion by Artificial Agents in Cournot Duopoly Games," in Formal Modelling in Electronic Commerce, ed, 2005, pp. 477-492.
S. Kimbrough and F. Murphy, "Learning to Collude Tacitly on Production Levels by Oligopolistic Agents," Computational Economics, 2008.
T. Riechmann, "Cournot or Walras? Long-Run Results in Oligopoly Games," Journal of Institutional and Theoretical Economics, vol. 162, pp. 702-720, 12 2006.
W. Kerber and N. J. Saam, "Competition as a Test of Hypotheses: Simulation of Knowledge-Generating Market Processes," in Journal of Artificial Societies and Social Simulation (JASSS), Vol.4, No.3, 2001, ed: SSRN, 2001.
B. J. Wilson and S. S. Reynolds, "Market Power and Price Movements over the Business Cycle," Journal of Industrial Economics, vol. 53, pp. 145-174, 06 2005.
T. S. Genc, et al., "Dynamic Oligopolistic Games under Uncertainty: A Stochastic Programming Approach," Journal of Economic Dynamics and Control, vol. 31, pp. 55-80, 01 2007.
K. Sznajd-Weron, "How effective is advertising in duopoly markets?," vol. 324, ed, 2003, p. 437.
J. Sarkar, et al., "A Geometric Solution of a Cournot Oligopoly with Nonidentical Firms," The Journal of Economic Education, vol. 29, pp. 118-126, Spring 1998.
R. R. Nelson and S. G. Winter, An evolutionary theory of economic change. Cambridge, Mass.: Belknap Press of Harvard University Press, 1982.
F. Malerba and L. Orsenigo, "Towards a History Friendly Model of Innovation, Market Structure and Regulation in the Dynamics of the Pharmaceutical Industry: the Age of Random Screening," CESPRI, Centre for Research on Innovation and Internationalisation, Universita' Bocconi, Milano, ItalyMay 2000.
A. J. Bagnall and G. D. Smith, "A multiagent model of the UK market in electricity generation," in Evolutionary Computation, IEEE Transactions on vol. 9, ed, 2005, pp. 522-536.
D. W. Bunn, "An Application of Agent-based Simulation to the New Electricity Trading Arrangements of England and Wales," Society for Computational Economics, ReportApr 2001.
C. M. Macal and M. J. North, "Validation of an Agent-based Model of Deregulated Electric Power Markets," ed. Center for Complex Adaptive Agent Systems Simulation (CAS2), 2004.