Dynamics of the non linear learning curve with spillovers in a differentiated oligopoly: effects on industry structure

J Evol Econ (2006) 17: 95106

DOI 10.1007/s00191-006-0032-6

REGULAR ARTICLE

Emanuela Randon Ahmad Naimzada

Published online: 18 October 2006 Springer-Verlag 2006

Abstract We analyze the effects on industry structure of non strategic learning-by-doing with spillovers in a differentiated oligopoly la Bertrand. The dynamics is driven by a non linear learning curve. Conditions for shake-outs are analyzed, focusing on the key factors affecting them. Policy interventions to limit shakeouts are suggested.

Keywords Industry dynamics Non linear learning curve Spillover

Shakeouts

JEL Classications L11 L13 O31

1 Introduction

The economic literature provides empirical evidence of how learning-by-doing and spillovers shape the industrial structure (Foster and Rosenzweig 1995; Lieberman 1984; Zimmerman 1982). Consequently, the analysis of the effects of learning-by-doing and spillovers has emerged as an important research topic for consideration of industrial policies.

In this paper, we consider how learning-by-doing affects the industry evolution when spillovers occur in a Bertrand oligopoly without incumbent strategic

E. Randon (B) A. Naimzada

Dipartimento di Economia Politica, Universit degli Studi di Milano-Bicocca,P.zza dellAteneo Nuovo 1, 20126 Milan, Italy e-mail: [email protected]

Present Address:E. Randon

Dipartimento di Scienze Economiche, Universit degli Studi di Bologna, Piazza Scaravilli 2, 40126 Bologna BO, Italy

Dynamics of the non linear learning curve with spillovers in a differentiated oligopoly: effects on industry structure

96 E. Randon, A. Naimzada

learning or predatory pricing. We show that, even if learning is not modeled as a strategic variable,1 it is the driving force for making less inefcient rms exit the market. By contrast, spillovers have an opposite effect on industry evolution, allowing less efcient rms to reduce their technological gap with respect to the dominant rms. In every period, the industry conduct is the synthesis of the action of these two conicting forces on rm performance. We do not assume entry: the number of rms acting is given at the beginning of the game. The industry concentration and the type of competition arising in every period is only given by rm exits. Shakeouts are thus linked to the dynamics of rm exits.

There is empirical evidence of shakeouts in a variety of industries, different for type of products, adopted technologies and types of competition. Gort and Klepper (1982) and Klepper and Graddy (1990) use a sample of 46 products. Klepper and...