Using an agent-based modular economic model, we study the effect of social interactions on product innovation and its further impact on competitiveness dynamics. Two firms with different intensities of social interactions are placed in a context of duopolistic competition. The macroscopic analysis based on various criteria, including the market share, profit rate, accumulated capital, waste ratio and consumers’ satisfaction level, indicates that high social interaction within the firm can lead to not only a healthy firm but also a healthy economy. However, this positive result is undermined by the catastrophic nature of the modular economy as shown in the microscopic analysis. Furthermore, the mesoscopic analysis shows that in the long run the duopoly market tends to become a monopolistic market, and there is a non-trivial probability that the low-interaction firm will drive out the high-interaction firm. The risk of innovation in this model may be greater than what the usual economic model may expect.
Progress in Artificial Economics Lecture Notes in Economics and Mathematical Systems Volume 645, 2010, pp 127-138