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Does AMD Spur Intel to Innovate More?

  • Ronald L. Goettler
  • Brett R. Gordon

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/pdfplus/10.1086/664615
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File URL: http://www.jstor.org/stable/full/10.1086/664615
Download Restriction: Access to the online full text or PDF requires a subscription.

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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
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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