Multiproduct Firms, Learning by Doing and Price-Cost Margins over the Product Life Cycle: Evidence from the DRAM Industry

In this paper we specify and estimate a structural model of multiproduct firms for the semiconductor industry. In addition, we explicitly consider dynamics over the product life cycle. We find that these two aspects have important implications and provide evidence that (i) Learning by Doing, Economies of Scale, and price-cost margins are higher for multiproduct firms than for single product firms. Furthermore, we find that, once multiproduct firms are introduced, firms behave like Cournot players in the product market, whereas a single product specification leads to firms behaving as if in perfect competition. We also find that (ii) Learning by Doing, Economies of Scale, and Spillover effects vary over the product cycle. Learning by Doing and Economies of Scale effects are higher at the end of the life cycle. We specify a dynamic theoretical model and estimate a structural model by using quarterly firm-level output and cost data as well as industry prices for the Dynamic Random Access Memory (DRAM) industry from 1974 to 1996.