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The Learning Curve in a Competitive Industry

Listed author(s):
  • 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. While 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 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
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. Jovanovic, Boyan & Lach, Saul, 1989. "Entry, Exit, and Diffusion with Learning by Doing," American Economic Review, American Economic Association, vol. 79(4), pages 690-699, September.
  2. Saman Majd & Robert S. Pindyck, 1989. "The Learning Curve and Optimal Production under Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 331-343, Autumn.
  3. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
  4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
  5. Stokey, Nancy L, 1988. "Learning by Doing and the Introduction of New Goods," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 701-717, August.
  6. Hugo A. Hopenhayn, 1993. "The shakeout," Economics Working Papers 33, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Emmanuel Petrakis & Eric Rasmusen & Santanu Roy, 1997. "The Learning Curve in a Competitive Industry," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 248-268, Summer.
  8. Clarida, Richard H, 1993. "Entry, Dumping, and Shakeout," American Economic Review, American Economic Association, vol. 83(1), pages 180-202, March.
  9. Pankaj Ghemawat & A. Michael Spence, 1985. "Learning Curve Spillovers and Market Performance," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 839-852.
  10. 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 246-268, June.
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  15. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
  16. Michele Boldrin & Jose A. Scheinkman, 1988. "Learning-By-Doing, International Trade and Growth: A Note," UCLA Economics Working Papers 462, UCLA Department of Economics.
  17. Luis M.B. Cabral & Michael H. Riordan, 1991. "Learning to Compete and Vice Versa," Papers 0017, Boston University - Industry Studies Programme.
  18. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
  19. Drew Fudenberg & Jean Tirole, 1983. "Learning-by-Doing and Market Performance," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 522-530, Autumn.
  20. Gautam Bhattacharya, 1984. "Learning and the Behavior of Potential Entrants," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 281-289, Summer.
  21. Panzar, John C., 1989. "Technological determinants of firm and industry structure," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 1, pages 3-59 Elsevier.
  22. 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 517-530, October.
  23. Dilip Mookherjee & Debraj Ray, 1991. "Collusive Market Structure Under Learning-By-Doing and Increasing Returns," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 993-1009.
  24. 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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