In this paper we focus on two concepts essential in an evolutionary approach to the phenomenon of technological progress. First, there is the notion of heterogeneity, central to any evolutionary processes dealing with mutation and selection, i.e. innovation and competition. This heterogeneity is then to be seen in a twofold way: On the one hand, it is heterogeneity which drives the selection/competition processes. On the other hand, it is to be considered as the outcome of intended search and experimentation endeavours where strong uncertainty often plays an important role. These intentional processes are just one first difference between evolution in biological terms and evolution in the cultural sphere.
Second, another major difference refers to the existence of spillovers. Allen (1983) and Silverberg (1990) coined the concept of collective invention, pointing to the fact that further progress is often realized by the interaction of different individuals and organisations providing specific knowledge stocks and ideas. By this, they extend the understanding of spillovers from the traditional imitation and catch-up aspect to a view which emphasizes the idea-creating feature and thus cross-fertilization.
The interplay between heterogeneity and spillovers develops along the following principle lines. First, a necessary requirement for technological spillovers are differences between agents, i.e. heterogeneity. Second, whenever spillovers are seen in the traditional imitative context, they tend to reduce heterogeneity. Third, the amalgamation of different ideas, i.e. cross-fertilization, often creates new specific opportunities which in turn raises the differences among the actors. Taken these relations together, technological development can be imagined as a process of increasing and decreasing heterogeneity driving the direction and speed of progress as well as extending the opportunity space.
Building on previous work (Cantner, Hanusch, Pyka (1997)) we extent a model of heterogeneous oligopoly with bounded rational agents to a two input factor model. By this, we can now handle not only endogenous vertical but also endogenous horizontal heterogeneity. Whereas spillovers arising in the former context allow for imitation, spillovers in the latter respect explicitly open up possibilities for cross-fertilization. Here, these effects do not only influence the rate of technological progress but also its direction with respect to factor input intensity. However, to use spillovers the recipient has to provide appropriate absorptive capabilities which are not God-given but have to be actively acquired. According to Cohen/Levinthal (1989) this, like research and development is also a costly process. This opens up strategic considerations of agents which then may or may not decide to invest into the building up of absorptive capacity.
Within this context we present results from a simulation study dealing with the following points: (1) the relationship between heterogeneity, spillovers and the rate of technical progress, (2) the influence of spillovers on the direction of change; (3) the performance and effectiveness of different innovation strategies; and (4) a scenario-analysis with respect to different appropriability and competitive conditions.
Cohen, W.M., Levinthal, D.A. (1989), Innovation and Learning: The two Faces of R&D, Economic Journal, Vol.99., pp. 569-596.
Silverberg, G. (1991), Adoption and Diffusion of Technology as a Collective Evolutionary Process, in: Freeman C, L.Soete (eds) New Explorations in the Economics of Technological Change, London&New York: Pinter Publishers, 1990.
Cantner, U., Hanusch, H., Pyka, A. (1997), Routinized Innovations, Dynamic Capabilities in a Simulation Study, Proceedings of the International J.A. Schumpeter Society’s annual meeting in Stockholm 1996 (forthcoming).
Allen, R.C. (1983), Collective Invention, Journal of Economic Behavior and Organization, Vol. 4, pp.1-24.