How institutional arrangements in the National Innovation System affect industrial competitiveness: A study of Japan and the U.S. with multiagent simulation

- We build an agent model of the U.S. and Japan's (JP's) National Innovation System (NIS).
- We explore dynamics in the Japanese and U.S. National Innovation Systems.
- The JP NIS benefits industries where frequent incremental innovation is required.
- The U.S. NIS is advantageous in industries where frequent radical innovation is required.
- We derive implications for Japanese policymakers and firms.

The institutionalized long-term business relationships among Japan's (JP's) innovating players have been indicated as a weakness of JP's National Innovation System (NIS) compared with that of the U.S.This study examines how this institutionalized business relationship practice determines the strengths and weaknesses of the U.S. and JP's NIS using agent-based modeling and simulation. Our analysis reveals that the JP NIS is at an advantage in an industry where consumer demand changes rapidly and incremental innovation is crucial. In contrast, the U.S. NIS benefits an industry where frequent radical innovation is required. Furthermore, we show that heavy reliance on in-house R&D is advantageous over open-innovation practice in an industry where radical innovation is crucial when long-term business relationships are prominent. Based on the simulation results, we draw conclusions including strategic and policy implications for JP firms and policymakers, respectively.