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The Learning Curve in a Competitive Industry

Author

Listed:
  • Emmanuel Petrakis

    (Departamento de Economia, Universidad Carlos III de Madrid)

  • Eric Rasmusen

    (Indiana University School of Business)

  • Santanu Roy

    (Econometric Institute, Erasmus University)

Abstract

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 it dictates that firms exit after learning. Finally, actual and optimal industry concentration does not always increase in the intensity of learning.

Suggested Citation

  • Emmanuel Petrakis & Eric Rasmusen & Santanu Roy, 1995. "The Learning Curve in a Competitive Industry," Industrial Organization 9506001, EconWPA.
  • Handle: RePEc:wpa:wuwpio:9506001
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Fabio Antoniou & Roland Strausz, 2014. "The Effectiveness of Taxation and Feed-in Tariffs," CESifo Working Paper Series 4788, CESifo Group Munich.
    2. Reichenbach, Johanna & Requate, Till, 2012. "Subsidies for renewable energies in the presence of learning effects and market power," Resource and Energy Economics, Elsevier, vol. 34(2), pages 236-254.
    3. Hommes, Cars & Zeppini, Paolo, 2014. "Innovate or Imitate? Behavioural technological change," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 308-324.
    4. Thompson, Peter, 2010. "Learning by Doing," Handbook of the Economics of Innovation, Elsevier.
    5. Till Requate, 2015. "Green tradable certificates versus feed-in tariffs in the promotion of renewable energy shares," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(2), pages 211-239, April.
    6. 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.
    7. Bläsi, Albrecht & Requate, Till, 2007. "Subsidies for Wind Power: Surfing down the Learning Curve?," Economics Working Papers 2007-28, Christian-Albrechts-University of Kiel, Department of Economics.
    8. Petrakis, Emmanuel & Roy, Santanu, 1999. "Cost-Reducing Investment, Competition, and Industry Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 381-401, May.
    9. Sengupta Aditi, 2010. "Environmental Regulation and Industry Dynamics," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-29, June.
    10. Ana Espínola-Arredondo & Félix Muñoz-García, 2013. "Uncovering Entry Deterrence in the Presence of Learning-by-Doing," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 319-338, September.
    11. repec:kap:enreec:v:67:y:2017:i:4:d:10.1007_s10640-016-0012-8 is not listed on IDEAS
    12. Philip Auerswald, 2010. "Entry and Schumpeterian profits," Journal of Evolutionary Economics, Springer, vol. 20(4), pages 553-582, August.

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