Techniques for general modelling of innovation strategies in entrant-incumbent scenarios
Doctoral Thesis
2003
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University of Cape Town
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This thesis contributes to the literature in industrial organization economics on strategic behavior with respect to innovation. In particular, it seeks to extend the applicability of conclusions drawn from a Nash Equilibrium framework in response to the criticisms of Sutton (1991, 1998) through the use of sensitivity analysis. In addition, the focus of the investigation is the link between innovation and persistence of monopoly. The work of Gilbert & Newbery (1982) is used as a foundation for building a new analytical framework for application to innovation games in the traditional 'incumbent-entrant' scenario, but in the absence of the usual restrictive patenting assumption. The analysis of this framework is achieved by justifying an axiomatic definition of the pay-offs to players in various games and then using a computer software program to generate the Nash Equilibrium solution for many hundreds of scenarios. The sensitivity of the N.E. solution to changes in model parameters can then be ascertained. The general conclusion drawn from this approach is that the findings of much of the literature hold only under certain highly restrictive conditions. The investigation shows that barriers to entry are of far more relevance to the identity of the innovator than the characteristics of competition in the market once entry is achieved. It is also demonstrated that the incumbent is more likely to innovate first in an industry that demonstrates a systematically high level of growth. Scenarios of particular unintended risk to social welfare through regulatory attempts at stimulating competition are also identified.
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Bibliography: leaves 178-180.
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Reference:
Wolf, G. 2003. Techniques for general modelling of innovation strategies in entrant-incumbent scenarios. University of Cape Town.