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Inter-firm knowledge diffusion, market power, and welfare

Author

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  • Luca Colombo
  • Paola Labrecciosa

Abstract

We propose an infinite-horizon quantity-setting differential game with learning spillovers and organizational forgetting to analyze the optimal management decisions affecting the evolution of the stock of know-how, and, in turn, the dynamics of productive efficiency. Specifically, we study the long run impact of inter-firm knowledge diffusion on market power, i.e. the ability of a firm to raise the price above the marginal cost, and welfare. We consider two types of processes through which knowledge is acquired: (i) passive learning, or learning-by-doing, where managers do not actively invest in information and (ii) active learning, or learning-by-investing, where managers acquire new and additional information through specific investments in human capital. We show that: under (i), knowledge diffusion reduces market power; under (ii), knowledge diffusion reduces market power as long as learning spillovers are sufficiently important. From a welfare viewpoint, we also show that: under (i), knowledge diffusion is always welfare-enhancing; under (ii), weak spillovers are required in order for knowledge diffusion to be welfare-enhancing. Copyright Springer-Verlag 2012

Suggested Citation

  • Luca Colombo & Paola Labrecciosa, 2012. "Inter-firm knowledge diffusion, market power, and welfare," Journal of Evolutionary Economics, Springer, vol. 22(5), pages 1009-1027, November.
  • Handle: RePEc:spr:joevec:v:22:y:2012:i:5:p:1009-1027
    DOI: 10.1007/s00191-011-0227-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Game theory; Differential games; Knowledge diffusion; Learning spillovers; Organizational forgetting; C73; D83; L13;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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