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An Agent Based Cournot Simulation With Innovation: Identifying The Determinants Of Market Concentration

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Executive Summary

In this paper, the author develops a hybrid model that contains elements of both Agent Based Simulations (ABS) as well as analytic Cournot models, to study the effects of firm characteristics, market characteristics, and innovation on market concentration, as measured by a Herfindahl-Hirschman Index (HHI). The model accommodates the following components: multiple firms with heterogeneous marginal costs, market entry and exit, barriers to entry, low or high cost industries, changing demand, varying levels of marginal cost reducing returns-to-innovation, varying costs associated with innovation, increased returns to innovation from past experience innovating, and varying propensities to innovate within the market.

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