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Does AMD Spur Intel to Innovate More?

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  • Ronald L. Goettler
  • Brett R. Gordon

Abstract

We estimate an equilibrium model of dynamic oligopoly with durable goods and endogenous innovation to examine the effect of competition on innovation in the personal computer microprocessor industry. Firms make dynamic pricing and investment decisions while consumers make dynamic upgrade decisions, anticipating product improvements and price declines. Consistent with Schumpeter, we find that the rate of innovation in product quality would be 4.2 percent higher without AMD present, though higher prices would reduce consumer surplus by $12 billion per year. Comparative statics illustrate the role of product durability and provide implications of the model for other industries.

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File URL: http://www.jstor.org/stable/full/10.1086/664615
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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 119 (2011)
Issue (Month): 6 ()
Pages: 1141 - 1200

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Handle: RePEc:ucp:jpolec:doi:10.1086/664615

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Cited by:
  1. Michael Cohen & Rui Huang, 2012. "Corporate Social Responsibility for Kids’ Sake: A Dynamic Model of Firm Participation," Working Papers 12, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  2. Zhou, Yiyi, 2012. "Failure to Launch in Two-Sided Markets: A Study of the U.S. Video Game Market," MPRA Paper 42002, University Library of Munich, Germany.
  3. Aamir Rafique Hashmi & Johannes Van Biesebroeck, 2010. "Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry," NBER Working Papers 15959, National Bureau of Economic Research, Inc.
  4. John Rust & Bertel Schjerning & Fedor Iskhakov, 2012. "A Dynamic Model of Leap-Frogging Investments and Bertrand Price Competition," 2012 Meeting Papers 370, Society for Economic Dynamics.
  5. Fedor Iskhakov & John Rust & Bertel Schjerning, 2013. "The Dynamics of Bertrand Price Competition with Cost-Reducing Investments," Discussion Papers 13-05, University of Copenhagen. Department of Economics.
  6. Aamir Rafique Hashmi, 2011. "Competition and Innovation: The Inverted-U Relationship Revisited," Departmental Working Papers wp1101, National University of Singapore, Department of Economics.
  7. Adam Hale Shapiro & Adam Copeland, 2010. "The Impact of Competition on Technology Adoption: An Apples-to-PCs Analysis," 2010 Meeting Papers 181, Society for Economic Dynamics.
  8. Victor Aguirregabiria & Victor Aguirregabiria & Aviv Nevo & Aviv Nevo, 2010. "Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games," Working Papers tecipa-419, University of Toronto, Department of Economics.
  9. Pinar Karaca-Mandic, 2011. "Role of complementarities in technology adoption: The case of DVD players," Quantitative Marketing and Economics, Springer, vol. 9(2), pages 179-210, June.
  10. Borkovsky, Ron N. & Doraszelski, Ulrich & Kryukov, Yaroslav, 2009. "A Dynamic Quality Ladder Model with Entry and Exit: Exploring the Equilibrium Correspondence Using the Homotopy Method," CEPR Discussion Papers 7560, C.E.P.R. Discussion Papers.
  11. C. Lanier Benkard & Przemyslaw Jeziorski & Gabriel Y. Weintraub, 2013. "Oblivious Equilibrium for Concentrated Industries," NBER Working Papers 19307, National Bureau of Economic Research, Inc.
  12. Pillai, Unni, 2011. "A model of technological progress in the microprocessor industry," MPRA Paper 31881, University Library of Munich, Germany.
  13. Ronald Goettler & Brett Gordon, 2014. "Competition and product innovation in dynamic oligopoly," Quantitative Marketing and Economics, Springer, vol. 12(1), pages 1-42, March.
  14. Maican, Florin G., 2012. "From Boom to Bust and Back Again: A dynamic analysis of IT services," Working Papers in Economics 543, University of Gothenburg, Department of Economics.
  15. Aamir Hashmi, 2012. "The Relationship between Market Structure and Innovation in Industry Equilibrium: A Case Study of the Global Automobile Industry," 2012 Meeting Papers 356, Society for Economic Dynamics.
  16. Miller, Nathan H. & Osborne, Matthew, 2014. "Consistency and asymptotic normality for equilibrium models with partially observed outcome variables," Economics Letters, Elsevier, vol. 123(1), pages 70-74.
  17. Ron Borkovsky & Ulrich Doraszelski & Yaroslav Kryukov, 2012. "A dynamic quality ladder model with entry and exit: Exploring the equilibrium correspondence using the homotopy method," Quantitative Marketing and Economics, Springer, vol. 10(2), pages 197-229, June.
  18. Marc Rysman & Gautam Gowrisankaran, 2011. "Dynamics of Consumer Demand for New Durable Goods," Boston University - Department of Economics - Working Papers Series WP2011-062, Boston University - Department of Economics.

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