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Journal of Economic Behavior and Organization 19 (1992) 343 368. North-Holland Market, innovation, competition An evolutionary model of industrial dynamics Witold Kwasnicki and Halina Kwasnicka* Technicał Unitersity of Wrocław, Wroclaw, Poland Received Juty 1990, final version received July 1991 A model is presented of the behavior ol a number of competing firms producing functionaily similar products. Each firm scarches for new routines and new combinations of the routines, i.e Mechnical and organizationał ideas and skills associated with a particular economic context Decisions of a rm related lo investment. modernizalion of production, price, etc, are based on the firm's evaluation of thc behavior of other competing firms and the expected response of the market. Firms search for new combinations of routines in order to minimize the unit cost of production, maximize the productivity of capital, and maximize the competitiveness of their products in the market. Results of simulation of the model concerning investigation of price selling procedures, and long- and short-term firms objectives are presented. 1. Introduction This paper presents a modeł that describes the behavior of a number of competing firms producing functionally equivalent products. Each firm scarches for new roulines and new combinations of routines. Nelson and Winter (1982, p. 14) define routines as 'regular and predictable behavioral patterns of firms” and include in this term such characteristics of firms as technical routines for producing things, (...) procedures of hiring and firing, ordering new inventory, stepping up production of items in high demand, policies regarding investment, research and development, advertising, busi- ness strategies about product diversification and overseas investment.” The decisions of a firm relating to investment, modernization of produc- tion, price, etc. are based on the firm's evaluation of behavior of other competing firms and the expected response of the market. The firm's knowledge of the market and knowledge of the future behavior of competi- tors is limited and uncerlain. There is no possibility of characterizing the Cerrespondence to: Professor Witold. Kwasnicki, Institute of Engineering Cyberneties, Techni- cal University of Wroclaw, Wyb. Wyspianskiego 27. 50 370 Wroclaw, Poland. *We express our gralitude to Gerald Silverberg of ihe Maastricht Economie Research Institute on Innovation and Technology and to Wojciech Wroblewski of the Futures Research Center, Wroclaw, for thcir hełpful comments during long discussions on the model presented in this paper. 0167 2681;92;805.00 ©) 1992 --Elsevier Science Publishers B.V. All rights reserved 
