In the first part of the chapter, an outline of the evolutionary model of industrial dynamics is presented. The second part deals with a simulation study of the model focused on identification of necessary conditions for emergence of different industrial strictures. Textbooks of traditional economics distinguish four typical industry structures and study them under the names of pure competition, pure monopoly, oligopoly, and monopolistic competition. Variations in behavior modes of differently concentrated industries ought to be an outcome of the cooperation of well-understood evolutionary mechanisms, and not the result of juggling differently placed curves representing supply, demand, marginal revenue, marginal cost, average costs, and so forth. Textbook analysis of industrial structures usually omits influence of innovation on market behavior. Evolutionary approach and simulation allow for such analysis and through that allow enriching the industrial development study. One of the important conclusions from this chapter is that evolutionary analysis may be considered as a very useful and complementary tool to teach economics.
Key Terms in this Chapter
Replicator Equation: A differential or difference equation that defines the selection dynamics of a population of competing agents (firms), considered within a frame evolutionary economics (also of evolutionary games).
Routine: Regular and predictable behavioral patterns of firms ; in evolutionary economics, the concept of routine plays a similar role as concept of gene in evolutionary biology.
Competitiveness: Ability of economic agents (firms) to compete in the market by offering technologically advanced or cheaper products.
Evolutionary Economics: In the broadest sense, a study of economic phenomena using analogies and metaphors of biological evolution. It represents an alternative approach to so-called “mainstream economics,” where analyses is based on mechanical analogies and metaphors borrowed from classical physics.