Knowledge Accumulation in hayekian Market Process Theory

Abstract

This simulation model is an example of theory-driven modeling that aims at developing new hypotheses on mechanisms that work in markets. The central aim is to model processes of knowledge accumulation in markets on the theoretical basis of Hayek’s concept of “competition as a discovery procedure,” in which firms experiment with innovations that are tested in the market, and the superior innovations are imitated by other firms through mutual learning. After an overview on the structure of these simulation models and important results of previous research, we focus on the analysis of the severe negative effects that limited imitability has for this Hayekian process of knowledge accumulation. We show that limited imitability can hamper this process through the emergence of a certain kinds of lock-in situations which reduces the number of changes in the position of the leading firm.