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DOI: 10.1007/s00191-003-0177-5
J Evol Econ (2004) 14: 8598Jim Y. Jin1, Juan Perote-Pe
na2, and Michael Troege31 Department of Economics, University of St. Andrews, St. Andrews, KY16 9AL, Scotland, UK2 Departamento de Economa y Empresa, Universidad Pablo de Olavide de Sevilla,Carretera de Utrera, Km. 1, 41013 Sevilla, Spain3 ESCP-EAP, 79, av. de la Republique, 75543 Paris, Cedex 11, France(e-mail: [email protected])Abstract. This paper studies industry evolution driven by non strategic learning
by doing and spillovers. We characterize a dynamic process of cost and output
changes and its effect on welfare and industry prots. The paper gives conditions
for shakeouts to occur and analyzes the key factors affecting these conditions. Since
shakeouts could lead to a long-run social loss due to higher market concentration,
there is a role for a government to play in limiting unnecessary shakeouts. The most
effective way to do so is to enhance spillovers.Keywords: Market evolution Learning by doing Spillover ShakeoutJEL Classication: L11, L13, O311 IntroductionIn this paper we present and solve a simple dynamic model describing how learning
by doing and spillovers can determine the evolution of an industry. Both effects
have long been recognized to have an important impact on industry formation.
Learning by doing, i.e., the reduction of a rms production costs due to past own
production experience, will in general enable market leaders to maintain or increase
their competitive advantage and eventually drive competitors out of the market.
Spillovers, i.e. cost reduction due to learning from the competitors production
have the opposite effect. They enable smaller and less performing competitors to[star] We would like to thank Hans Mewis, Christophe Moussu and an anonymous referee for valuable
comments and suggestions. We also beneted from comments of seminar participants at WZB, Humboldt University, Northwestern University and the EEA/ESEM 1999 meetings. Part of the research was
carried out while Michael Troge was visiting Northwestern University. Financial support by the German
Research Council (DFG) is gratefully acknowledged.Correspondence to: M. Troegec
[circlecopyrt]Springer-Verlag 2004Learning by doing, spillovers and shakeouts[star]86 J. Y. Jin et al.keep up with the technological evolution and stay competitive. Empirical studies
have found evidence for both effects in a wide range of industries. The examples
include Zimmerman (1982) for nuclear power plants, Lieberman (1989) for the
chemical processing industry, Foster and Rosenzweig (1995)...