Firms Decision Making Process in an Evolutionary Model of Industrial Dynamics

Evolutionary model of industrial dynamics, presented in this paper, can be classified as Schumpeterian one. The model describes the behaviour of a number of competing firms producing functionally equivalent products. Each firm tries to improve its position in the industry and in the market by introducing innovations in order to minimize the unit costs of production, maximize the productivity of capital, and maximize the competitiveness of its products on the market. The problem how decisions are made seems to be crucial for relevant modelling of socio-economic processes. The main aim of the simulations presented in the second part of the paper is to show how fluctuations and discontinuities occurs in economic processes due to boundedly rational decisions of competing firms. It is shown how fluctuation of 3–6 years and of 10 years periodicity can occur in an industry development because of firms’ bounded rationality. Long waves of development of 50–60 years period (Kondratieff cycles) occur in the model because of radical innovation emergence at the maturity phase of an ‘old’ technology.