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The Learning Curve in a Competitive Industry

  • Petrakis, E.
  • Rasmusen, E.
  • Roy, S.

We consider the learning curve in an industry with free entry and exit and price-taking firms. A unique equilibrium exists if the fixed cost is positive. Although equilibrium profits are zero, mature firms earn rents on their learning, and if costs are convex, no firm can profitably enter after the date the industry begins. Under some cost and demand conditions, however, firms may have to exit the market despite their experience gained earlier. Furthermore, identical firms facing the same prices may produce different quantities. The market outcome is always socially efficient, even if it dictates that firms exit after learning. Finally, actual and optimal industry concentration does not always increase in the intensity of learning.

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Paper provided by Indiana - Center for Econometric Model Research in its series Papers with number 94-004.

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Length: 15 pages
Date of creation: 1994
Date of revision:
Handle: RePEc:fth:indian:94-004
Contact details of provider: Postal: Indiana University, Center for Econometric Model Research, Department of Economics; Bloomington, IN 47405.
Phone: 812-855-1021
Fax: 812-855-3736
Web page: http://www.indiana.edu/~econweb/
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  1. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
  2. Michele Boldrin & Jose A. Scheinkman, 1988. "Learning-By-Doing, International Trade and Growth: A Note," UCLA Economics Working Papers 462, UCLA Department of Economics.
  3. Gautam Bhattacharya, 1984. "Learning and the Behavior of Potential Entrants," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 281-289, Summer.
  4. Dasgupta, Partha & Stiglitz, Joseph E, 1988. "Learning-by-Doing, Market Structure and Industrial and Trade Policies," Oxford Economic Papers, Oxford University Press, vol. 40(2), pages 246-68, June.
  5. Nancy L Stokey, 1986. "Learning-by-Doing and the Introduction of New Goods," Discussion Papers 699, Northwestern University, Center for Mathematical Studies in Economics and Management Science, revised May 1987.
  6. Ghemawat, Pankaj & Spence, A Michael, 1985. "Learning Curve Spillovers and Market Performance," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 839-52, Supp..
  7. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-21, January.
  8. Smiley, Robert H & Ravid, S Abraham, 1983. "The Importance of Being First: Learning Price and Strategy," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 353-62, May.
  9. Clarke, Frank H & Darrough, Masako N & Heineke, John M, 1982. "Optimal Pricing Policy in the Presence of Experience Effects," The Journal of Business, University of Chicago Press, vol. 55(4), pages 517-30, October.
  10. Richard H. Clarida, 1991. "Entry, Dumping, and Shakeout," NBER Working Papers 3814, National Bureau of Economic Research, Inc.
  11. Jovanovic, Boyan & Lach, Saul, 1988. "Entry, Exit, And Diffusion With Learning By Doing," Working Papers 88-16, C.V. Starr Center for Applied Economics, New York University.
  12. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  13. Luis M.B. Cabral & Michael H. Riordan, 1991. "Learning to Compete and Vice Versa," Papers 0017, Boston University - Industry Studies Programme.
  14. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  15. Hugo A. Hopenhayn, 1993. "The shakeout," Economics Working Papers 33, Department of Economics and Business, Universitat Pompeu Fabra.
  16. Mookherjee, Dilip & Ray, Debraj, 1991. "Collusive Market Structure under Learning-by-Doing and Increasing Returns," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 993-1009, October.
  17. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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