INVESTMENT ADJUSTMENTS IN PRODUCT MARKET COMPETITION

Situated in the research field of market structure and strategic behavior, a model is developed, which shows the impacts of investment adjustments on product market competition. Placed in a multi-firm multi-product setting, the consequences of decisions to split budgets in: (i) marketing and development activities and (ii) development expenditures into innovative or imitative activities is investigated. The model is validated with empirical data of the pharmaceutical industry, especially the drug market in Germany. An agent-based modeling and simulation approach is used to explain how the freedom of firms to adjust their investment according to an absolute (individual aspiration level) or relative comparison (success of competitors) can change market performance. The results show that investment strategies adjusted to the behavior of direct competitors outperforms adjustments based on individual aspiration levels.