Innovation Dynamics in a Monopsony Structure

Abstract

Innovation is a widely recognised driver of markets for economic growth and technological progress. This paper investigates the innovation dynamics in a monopsony market with a governmental monopsonist. The research is based on an agent-based model published for a traditional, competitive oligopoly market structure and explains aspects of innovation dynamics, such as how innovation is created, how the strategies of imitation and innovation pay off, the diffusion of both strategies and factors that influence them. Following the Schumpeterian concept of emerging innovation as a relational good, the model includes a dynamical component of strategy changes for sellers, which depends on the success of the strategy of those with whom they are exchanging information. For the present work, the structure of this model has been adapted to represent the specific buyer-power situation of monopsony markets. By changing the connectivity of the network between buyers and sellers and by combining all buyers into one, the network is transformed into one that models a monopsony market. In simplified terms, part of the European space market has been described as such a monopsonistic market with a governmental quasi-monopsonist. The paper investigates how innovation dynamics change in such a market.

The impact of digital technologies on business models. Insights from the space industry

“…Until the early 2000s, the space industry did not present the proper conditions in which private actors could invest and create added value for a series of reasons. First, space activities mainly addressed public institutions, governments and service providers which indeed were the most important customers, making the market a kind of “governmental monopsony” (a single or dominant buyer dealing with multiple sellers) (Smyrlakis et al , 2011). Second, because of the long time needed to contract, procure and deliver (Sheffer et al , 2000), space business was too expensive for new incumbents.…”