Heterogeneity of demand and product innovation ♦

Caliari, Thiago; Valente, Marco; Ruiz, Ricardo Machado

doi:10.1590/0101-416147115trm

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Articles • Estud. Econ. 47 (1) • Jan-Mar 2017 • https://doi.org/10.1590/0101-416147115trm copy

Heterogeneity of demand and product innovation ^♦ ♦ The authors would like to thank CNPq for financial support and the two anonymous reviewers for their helpful comments. All remaining errors are ours.

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

This paper discusses the relationship between heterogeneity of demand regarding choice procedures and product innovation. We propose an evolutionary model showing how consumers with imperfect information chose and select differentiated goods. The model shows the role of information and choice procedures and its relation with the innovative process. The price plays an important role, but the quality of information, error tolerance and criteria for preference ordering are important determinants of the performance of firms in an industry with product innovation.

Keywords:
Demand; Information; Heterogeneity; Innovation; Evolutionary model

Simulation	Stylized pattern	Variables	Firms with radical innovations	Other firms	Firms with radical innovations	Other firms
Simulation	Stylized pattern	Variables	Real values		% in relation to Sim 1
Sim 1	Perfect competition	Average HH	0.105		-
		Average market share	0.102	0.098	-	-
		Average price	3.82	4.01	-	-
		Average profit	57.50	59.29	-	-
Sim 2	Monopoly	Average HH	0.737		605%
		Average market share	0.344	0.038	238%	-61%
		Average price	1.57	1.40	-59%	-65%
		Average profit	24.83	7.68	-57%	-87%
Sim 3	Oligopoly Two consumer groups	Average HH	0.372		256%
		Average market share	0.158	0.084	56%	-14%
		Average price	3.57	3.47	-6%	-13%
		Average profit	72.50	35.28	26%	-40%
Sim 4	Oligopoly Consumers prefer price	Average HH	0.286		173%
		Average market share	0.109	0.097	7%	-1%
		Average price	2.95	2.62	-23%	-35%
		Average profit	36.78	33.25	-36%	-44%
Sim 5	Oligopoly Consumers prefer technology	Average HH	0.422		304%
		Average market share	0.230	0.067	127%	-32%
		Average price	4.25	3.35	11%	-16%
		Average profit	145.08	36.50	152%	-38%

Departamento de Economia; Faculdade de Economia, Administração, Contabilidade e Atuária da Universidade de São Paulo (FEA-USP) Av. Prof. Luciano Gualberto, 908 - FEA 01 - Cid. Universitária, CEP: 05508-010 - São Paulo/SP - Brasil, Tel.: (55 11) 3091-5803/5947 - São Paulo - SP - Brazil
E-mail: estudoseconomicos@usp.br

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[TFN1] Source: Own elaboration.

Supply
Firms	10
Products by firm	1
y_i² (technological dimension)	0.05
α_i,j	1
Global maximum	1
Δ_T	1
c_i (unit cost)	1
Demand
Group 1 - price-dominant	100
Group 2 - technology-dominant	100
m¹ - maximum price	15
m² - minimum technology	0
Δ	1
τ	1
Price
α (market share variation)	0.01
sc (price variation)	0.02
pf, _t=0 (initial price)	4

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Heterogeneity of demand and product innovation ♦ ♦ The authors would like to thank CNPq for financial support and the two anonymous reviewers for their helpful comments. All remaining errors are ours.

Abstract

Heterogeneity of demand and product innovation ^♦ ♦ The authors would like to thank CNPq for financial support and the two anonymous reviewers for their helpful comments. All remaining errors are ours.