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Inter-firm knowledge diffusion, market power, and welfare

  • Luca Colombo

    ()

  • Paola Labrecciosa

    ()

Registered author(s):

    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

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    File URL: http://hdl.handle.net/10.1007/s00191-011-0227-3
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    Article provided by Springer in its journal Journal of Evolutionary Economics.

    Volume (Year): 22 (2012)
    Issue (Month): 5 (November)
    Pages: 1009-1027

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    Handle: RePEc:spr:joevec:v:22:y:2012:i:5:p:1009-1027
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