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The Learning Curve in a Competitive Industry

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  • Emmanuel Petrakis
  • Eric Rasmusen
  • Santanu Roy

Abstract

We consider the learning curve in an industry with free entry and exit and price-taking firms. A unique equilibrium exists if the fixed cost is positive. Although equilibrium profits are zero, mature firms earn rents on their learning, and if costs are convex, no firm can profitably enter after the date the industry begins. Under some cost and demand conditions, however, firms may have to exit the market despite their experience gained earlier. Furthermore, identical firms facing the same prices may produce different quantities. The market outcome is always socially efficient, even if it dictates that firms exit after learning. Finally, actual and optimal industry concentration does not always increase in the intensity of learning.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 28 (1997)
Issue (Month): 2 (Summer)
Pages: 248-268

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Handle: RePEc:rje:randje:v:28:y:1997:i:summer:p:248-268

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References

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  1. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 350-55, May.
  2. Clarida, R.H., 1991. "Entry, Dumping and Shakeout," Discussion Papers, Columbia University, Department of Economics 1991_13, Columbia University, Department of Economics.
  3. Jovanovic, Boyan & Lach, Saul, 1988. "Entry, Exit, And Diffusion With Learning By Doing," Working Papers, C.V. Starr Center for Applied Economics, New York University 88-16, C.V. Starr Center for Applied Economics, New York University.
  4. Dasgupta, Partha & Stiglitz, Joseph E, 1985. "Learning-by-doing, Market Structure and Industrial and Trade Policies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 80, C.E.P.R. Discussion Papers.
  5. Ghemawat, Pankaj & Spence, A Michael, 1985. "Learning Curve Spillovers and Market Performance," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(5), pages 839-52, Supp..
  6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  7. Luis M.B. Cabral & Michael H. Riordan, 1991. "Learning to Compete and Vice Versa," Papers, Boston University - Industry Studies Programme 0017, Boston University - Industry Studies Programme.
  8. Nancy L Stokey, 1986. "Learning-by-Doing and the Introduction of New Goods," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 699, Northwestern University, Center for Mathematical Studies in Economics and Management Science, revised May 1987.
  9. Clarke, Frank H & Darrough, Masako N & Heineke, John M, 1982. "Optimal Pricing Policy in the Presence of Experience Effects," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 55(4), pages 517-30, October.
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  11. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
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  13. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 60(5), pages 1127-50, September.
  14. Mookherjee, Dilip & Ray, Debraj, 1991. "Collusive Market Structure under Learning-by-Doing and Increasing Returns," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(5), pages 993-1009, October.
  15. Gautam Bhattacharya, 1984. "Learning and the Behavior of Potential Entrants," RAND Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 15(2), pages 281-289, Summer.
  16. Smiley, Robert H & Ravid, S Abraham, 1983. "The Importance of Being First: Learning Price and Strategy," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 353-62, May.
  17. Michele Boldrin & Jose A. Scheinkman, 1988. "Learning-By-Doing, International Trade and Growth: A Note," UCLA Economics Working Papers, UCLA Department of Economics 462, UCLA Department of Economics.
  18. Hugo A. Hopenhayn, 1993. "The shakeout," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 33, Department of Economics and Business, Universitat Pompeu Fabra.
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Citations

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Cited by:
  1. Philip Auerswald, 2010. "Entry and Schumpeterian profits," Journal of Evolutionary Economics, Springer, Springer, vol. 20(4), pages 553-582, August.
  2. Peter Thompson, 2008. "Learning by Doing," Working Papers, Florida International University, Department of Economics 0806, Florida International University, Department of Economics.
  3. Bläsi, Albrecht & Requate, Till, 2007. "Subsidies for Wind Power: Surfing down the Learning Curve?," Economics Working Papers, Christian-Albrechts-University of Kiel, Department of Economics 2007,28, Christian-Albrechts-University of Kiel, Department of Economics.
  4. Ana Espínola-Arredondo & Félix Muñoz-García, 2013. "Uncovering Entry Deterrence in the Presence of Learning-by-Doing," Journal of Industry, Competition and Trade, Springer, Springer, vol. 13(3), pages 319-338, September.
  5. Fabio Antoniou & Roland Strausz, 2014. "The Effectiveness of Taxation and Feed-in Tariffs," CESifo Working Paper Series, CESifo Group Munich 4788, CESifo Group Munich.

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