The Changing Determinants of Economic Performance in the World Economy
New Horizons in Institutional and Evolutionary Economics series
Chapter 10: Product market characteristics
In the preceeding three chapters we analyzed the supply-side determinants of economic growth and competitiveness. We now move on to the demand-side. However we will not adopt a Keynesian framework which emphasizes the quantity of aggregate demand as the key determinant of economic performance. Our focus will be more microeconomic underlining the importance of the specific characteristics of national product markets. The productive resources, technologies and organizational arrangements of firms and economic systems can only be competitive with regard to particular sets of product markets. In recent years demand patterns and product markets have become increasingly differentiated due to the growing individualization of consumers and specialization of producers. Rapid technological change and growing internationalization of business have also made product markets increasingly dynamic (Streeck 1992; Lash and Urry 1994; Coriat 1997). In highly differentiated and dynamic markets firms can only become and remain competitive if they have accurate knowledge about user needs and appropriate incentives to upgrade their productive resources, technologies and organizational arrangemements over time. Geographically differentiated demand patterns and market incentives may lead to considerable differences in international competitive advantage among firms located in different product market environments (Linder 1961; Vernon 1966; Porter 1990). 1 ANALYZING DIFFERENTIATED PRODUCT MARKETS The competitiveness implications of different product market characteristics can be analyzed within a stylized industry that reveals the underlying forces of product market competition. We use the ‘strategic frontier’ framework of Hämäläinen and Spender (1992, 1993) for this purpose. This framework, which is based on the...
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