The main elements of characterizing a market in an economic sense are the size, nature of demand and the degree of competition. Now I’m going to focus on the nature of technological competition, one of the main determinants of technological competition. The appropriability of innovation profits is a core element of innovation and competition. Getting the benefits if an innovation is one of the main problems of an innovating firm or not. Competitors generally induce the appropriability problem. We should center on corporations between the overall result at the market level and the firms in a market. The nature of technology in a market can strongly influence the intensity and nature of competition between its forms. How the technology of an industry is perceived and how this relates to the view of the competition process is fundamental. In this case, I can say that different theoretical visions may contain fundamentally different ways in which technology and market competition interact. For making this clearer, we should use the earlier mentioned distinction between a market with homogeneous technology and a market with heterogeneous technology. We elaborate on this now.
We can assume that a firm consists of only a production unit and an R&D unit. In the homogeneous market the production units of all firms make products with similar technological and demand characteristic. Similar demand characteristics mean high cross-elasticity of demand between the products of the firms. Similar technology means that the technology of the products and the production line with which they are produced are similar for all firms. The R&D units all focus on either and improvement of the existing technology or on a similar innovation project to create a radical change.
The products of the firms have a high class-elasticity of demand in the heterogeneous markets. But in the other case, if compare the heterogeneous case and homogenous case, I can say that this class-elasticity of demand in heterogeneous case is lower than in the homogeneous market. One other significant thing is that, the firms can be diverse for the technology incorporated in their production and also in their products. Therefore, R&D units of different firms can ensure innovation projects.
In the homogeneous market, technological competition goes instantly. It means that, when one of the firms gets on the opportunity to establish and to market a new product, then the other firms’ market share automatically declines. But when some of the firms or all the firms in the market realize innovation projects and when one of them gets patent as a “winner firm”, then the innovator receives the real monopoly earnings. Therefore, in this case the other firms’ earnings and the market shares will decrease. On the other hand, if there is a weak protection of patents, then the possibility of the doing imitation is very high. The cause of high imitation is the existence similarities of the technology of the firms. So, it’s clear that, market indeterminacy for the innovating firms is very high.
As I mentioned, one of the distinguish determinants of competitiveness in a technology market is innovation. Especially nowadays, when the world of technology develops very quickly. So, innovation is becoming an important element of competitiveness, in the context of the rapid development of new knowledge. The firms in the market must be constantly innovating to get away falling behind. But, it’s not obligation that they must move the technological frontier forward. In another case the advanced firms always can do it. Nevertheless, there are needs for firms to be fast imitators and to use the new technologies. It affects on firms’ technological capabilities.
As it’s known, firms make new products and new processes by doing innovation in their production procedure. But, innovation also is the best way to realize good management techniques and models in the business. Cargo is one of the best examples of this case, because cargo alleviates the shipping of products and consequently, it contributes to shrink the cargo costs. Now I would like to take an example for business innovation. The development of consumer product firms is one of the examples for business innovation. In this case the firms Dell is distinguishes, because this firm signs a contract according to their design and then abolishes the distributors and sells the products immediately to the final consumers. These facts show the importance of innovation in the production.
International Economics Chair