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Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation

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  • Jeremy C. Stein

Abstract

This paper develops a model of repeated innovation with knowledge spillovers. The model's novel feature is that firms compete on two dimensions: (1) product quality, where one firm's innovation ultimately spills over to other firms; and (2) distribution costs, where there are no spillovers across firms and where learning-by-doing on the part of incumbent firms gives them a competitive advantage over would-be entrants. Such firm-specific learning-by-doing has two important consequences: (1) it can in some circumstances dramatically reduce the long-run average level of innovation; (2) it leads to endogeneous bunching, or waves, in innovative activity.

Suggested Citation

  • Jeremy C. Stein, 1997. "Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 265-288.
    • Handle: RePEc:oup:restud:v:64:y:1997:i:2:p:265-288.
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