Technological change and market structure: An evolutionary approach

Abstract

This paper studies an inter-temporal market context in which firms innovate, imitate, and compete in quantities and technological choices each period. Potential entrants enter if there are profitable opportunities; incumbent firms exit when they go bankrupt. The key aspect of the model is that technological change evolves along a directed graph. This graph reflects both the direction of technological change and the magnitude of costs involved in switching technologies. In this set-up, my main concern is to explore the implications of different technological structures on entry/exit dynamics and on the evolution of market characteristics (market concentration, profitability variance, etc.).