Abstract:

Technological developments in information and communication sectors combined with globalization caused a transformation process that is similar to the one experienced during the industrial revolution. The ones who predict the direction of this transformation and successfully adopt themselves to the new environment become stronger. The continuous change in the new environment is eliminating the institutions resisting to the change before they are able to observe the consequence of these developments, which necessitates synchronization with these changes. This paper investigates this process and the behaviour of the firms by constructing a Cournot type game theoretic model that uses Rogers' diffusion of innovation theory. The model incorporates the accelerated product innovation process due to technological changes, globalization, and interaction of firms in competitive environment to predict the possible cost structures of the firms. The model in this paper confirms the expected results that innovator firms gain when adopting innovative products. In addition, there are also surprising results that provide evidence that even in globalization, under some circumstances neither consumers nor firms will benefit from this new transformation process.

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