Innovate or Imitate? Who Survives? Who Benefits? Agent-Based Modeling of a Technology-Driven Competitive Industry

In this paper, we study the behavior of innovation and imitation among a group of firms in a competitive industry. To survive, firms have two fundamental choices. They can choose to be innovative firms that develop cost-reducing technology by their own efforts. Alternatively, they can also choose to be an imitating firm, which simply ¡§steals¡¨ the technology from the innovative firms. The choice is adaptive in the sense that firms are able to learn from their experiences. In a standard model of supply and demand, we address the existence and characterization of the competitive equilibrium, including the survival dynamics of firms and implications for social welfare and intellectual property law. Our analytical approach is based upon what known as agent-based computational economics, which is now a standard paradigm for modeling an economy as a complex adaptive system. Within this paradigm, we employ a genetic algorithm to represent firms¡¦ strategic behavior and learning dynamics.