The effect of firm's routine on product evolution: The mobile phone

This paper aims to identify how products evolve by the interaction between consumers purchase decision-making and firm's routine. This paper applies the Agent-Based Model to a simulation focused on a mobile phone industry with five firms. The attributes of firms' routines are classified as imitation, incremental innovation, radical innovation, and routine. Furthermore, consumers purchase behavior is estimated by adopting a hedonic pricing model that reflects the shadow price of the products. The results show that there is more product diversification when firms have similar entry strategies but different new product development strategies. Market share of a firm tends to increase when it improves existing product characteristics rather than introducing new characteristics. Thus, firms that focus on imitation or incremental innovation dominate the industry.