Computational Economics

, Volume 24, Issue 4, pp 321–355 | Cite as

Evaluating Market Attractiveness: Individual Incentives Versus Industry Profitability

  • Herbert Dawid
  • Marc Reimann


In this paper, we employ an agent-based industry simulation model to study the effects of the interplay between individual firms’ market evaluation strategies on the extent of product innovations and overall industry development. In particular, we show that a homogenous industry consisting of companies with focus on historical profits yields high overall industry profits but is very unstable. The introduction of a single firm oriented towards market growth rather than profits is sufficient to trigger a severe drop in profits and a transformation towards an industry with strong market growth orientation and a large number of marketed product innovations. Furthermore, we show that the degree of horizontal differentiation of product innovations from existing products is of significant importance for the individual incentives to adopt market growth orientation and the effects of such a development on overall industry profits.


agent-based simulation innovation dynamics market attractiveness JEL codes: D83 L11 O32 


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Copyright information

© Springer Science + Business Media, Inc. 2005

Authors and Affiliations

  1. 1.Department of Business Administration and EconomicsUniversity of BielefeldBielefeldGermany
  2. 2.Institute for Operations ResearchSwiss Federal Institute of TechnologyZurichGermany

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