352
Chapter XXIV
Knowledge Accumulation in
Hayekian Market Process Theory
Nicole J. Saam
Ludwig-Maximilians-Universität, Germany
Wolfgang Kerber
Philipps-Universität Marburg, Germany
ABSTRACT
This simulation model is an example of theory-driven modeling that aims at developing new
hypotheses on mechanisms that work in markets. The central aim is to model processes of
knowledge accumulation in markets on the theoretical basis of Hayek’s concept of “competition
as a discovery procedure,” in which firms experiment with innovations that are tested in the
market, and the superior innovations are imitated by other firms through mutual learning.
After an overview on the structure of these simulation models and important results of previous
research, we focus on the analysis of the severe negative effects that limited imitability has for
this Hayekian process of knowledge accumulation. We show that limited imitability can
hamper this process through the emergence of a certain kinds of lock-in situations which
reduces the number of changes in the position of the leading firm.
INTRODUCTION
Economic growth theory as well as evolutionary theory of economic change has shown that
technological progress generated by processes
of innovation is the most important determinant
of economic growth (Nelson & Winter, 1982;
Aghion & Howitt, 1998). The search for factors that foster or impede the generation and
spreading of innovations is a central theme in
modern innovation economics. Since innovations (as new products or production technologies) emerge primarily in competition processes
between firms in markets, the analysis of the
dynamics and the interaction between competing firms is crucial for explaining technological
progress.
The simulation models that are presented in
this chapter are based upon evolutionary approaches to market competition, particularly on
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Knowledge Accumulation in Hayekian Market Process Theory
Hayek’s concept of “competition as a discovery procedure” (Hayek, 1948, 1978, p. 179). In
this approach competition is seen as a process
of parallel experimentation, in which rivalrous
firms on the supply side of a market generate
and test different hypotheses about the best
way to fulfill the consumers’ preferences. From
an Hayekian perspective, which particularly
emphasizes knowledge problems, the ultimate
test of which competitors have superior products or services in regard to preferences of
consumers is the market itself (via its feedback
through profits or losses). And the firms with
the relatively inferior products and services can
learn from the leading firms by imitation. This
evolutionary process of variation and selection
of hypotheses leads to a path of knowledge
accumulation in the market, driven by permanent innovation and mutual learning between
the firms (Kerber, 1997).
In our simulation experiments we analyze
central mechanisms and interactions between
the firms, particularly the extent of mutual
learning, in this Hayekian knowledge-generating competition process. One of the important
results in our previous research was that the
growth rate of knowledge accumulation in competition depends critically on the extent of the
imitability of the activities of the firms by their
competitors, because imitation is necessary for
mutual learning between the firms. The case of
limited imitability is empirically very relevant,
because imitation of successful firms can be a
time-consuming, complex, and risky activity,
which also can fail (Dosi, 1988). In this chapter we analyze more deeply the causes for
the severe reduction of knowledge accumulation through the non-imitability of particular activities. Since such non-imitabilities
can lead to some kinds of lock-in situations with
regard to the change of the leading firms, we
test three different hypotheses about the correlations between the number of emerging lockin situations, the changes of the leading firms,
and the growth rate of knowledge accumulation. The simulation model is approximated by a
new meta-model, multivariate regression analysis, to verify these hypotheses. We find that the
non-imitability of one activity does not only
reduce the extent of mutual learning, because
this activity cannot be imitated. Rather the
non-imitability of activities generates phenomena that hamper learning additionally: (1) lockin situations hamper mutual learning on the side
of the competitors, and (2) the reduction in the
number of changes of the leading firm hampers
mutual learning on the side of the leading firm.
In Hayekian market process theory, these are
the effects that slow down knowledge accumulation in competition under limited imitability
assumptions in a severe way.
THEORETICAL BACKGROUND
Evolutionary Concepts
of Competition
The theoretical background of our simulation
models are evolutionary approaches to market
competition, which are based upon Schumpeter,
Hayek, and evolutionary innovation economics.
Schumpeterian concepts of competition characterize competition as a rivalrous, dynamic
process between firms which consists of innovations by entrepreneurs and their imitation by
the competitors (Schumpeter, 1934). In the
Hayekian concept of “competition as a discovery procedure,” competition is seen as a process of parallel experimentation, in which the
firms try out new products and technologies in
the market, implying the generation of new
knowledge through this market test (Hayek,
1978). In modern evolutionary innovation economics, the accumulation of knowledge, which
drives economic development, is modeled—in
analogy to biological evolution—as the outcome of variation-selection-processes in re-
353
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