Government intervention modeling in microeconomic company market evolution

TL;DR

This paper models how government intervention affects technology growth and innovation in markets, revealing that high intervention can destabilize markets and lower long-term technological levels, especially when targeted at middle-level firms.

Contribution

It introduces a novel extension to existing models by incorporating government intervention probability, analyzing its impact on market dynamics through Monte Carlo simulations.

Findings

High intervention probability can destabilize market development.

Intervention in middle-level firms significantly influences market dynamics.

Market destabilization occurs when intervention is excessive or poorly targeted.

Abstract

Modern technology and innovations are becoming more crucial than ever for the survival of companies in the market. Therefore, it is significant both from theoretical and practical points of view to understand how governments can influence technology growth and innovation diffusion (TGID) processes. We propose a simple but essential extension of Ausloos-Clippe-P\c{e}kalski and related Cichy numerical models of the TGID in the market. Both models are inspired by the nonlinear non-equilibrium statistical physics. Our extension involves a parameter describing the probability of government intervention in the TGID process in the company market. We show, using Monte Carlo simulations, the effects interventionism can have on the companies' market, depending on the segment of firms that are supported. The high intervention probability can result, paradoxically, in the destabilization of the market development. It lowers the market's technology level in the long-time limit compared to markets with a lower intervention parameter. We found that the intervention in the technologically weak and strong segments of the company market does not substantially influence the market dynamics, compared to the intervention helping the middle-level companies. However, this is still a simple model which can be extended further and made more realistic by including other factors. Namely, the cost and risk of innovation or limited government resources and capabilities to support companies.