A Quantitative Approach to Include Time and Innovation in Traditional Market Analysis

Abstract

The rationale for most economic regulation, be it sector specific or antitrust, relies on the comparison of the analyzed market against the perfect competition model. Thus, it is based on the use of static equilibrium models. However, those models do not consider some important features that exist in the markets, like innovation, time, investment, technology or product differentiation. In this paper, we make an attempt to incorporate some of these variables in the traditional static analysis. Specifically, we propose a quantitative model to assess the effect of innovation and time in market dynamics. Our methodology should be understood as a first step before proceeding with the traditional market assessment, allowing the analyst to identify if the static assessment can be properly applied to the market under scrutiny. Once defined and justified, we try to apply the model to the telecommunications industry. In order for that, we will propose specific measures for innovation periods and relaxation times. We will make a first estimate for those periods and its relationship, and provide an interpretation for the results.