Learning by doing, spillovers and shakeouts

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 profits. 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. Copyright Springer-Verlag Berlin/Heidelberg 2004Market evolution, Learning by doing, Spillover, Shakeout,

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

“…In our model, thus, spillovers are definitely beneficial to the system. Even with a more complex learning curve, we confirm the results of beneficial spillover effects obtained with non strategic learning and linear learning curves (see Jin et al (2004)). Since also in our model learning is passive (it is driven by quantity decision of the previous period), the usual trade-off between incentives and cost reduction of strategic learning models does not occur (see, for example, Fudenberg and Tirole (1983) or Ghemawat and Spence (1985)).…”

R&D-induced industry polarization and shake-outs

“…Fudenberg and Tirole (1983) and Jin et al (2004) rely on learning by doing in otherwise different models. Suarez and Utterback (1995) posit a product life cycle with an initial phase of product innovation that concludes with the emergence of a long run dominant design, which leads to a shake-out of firms not adopting this standard, followed by stages of process innovation.…”

Parametric interdependence, learning-by-doing, and industrial structure

“…The ability of spillovers to delay and soften the impact of shakeouts could be counteracted by the suboptimal technologies to which they may lead. Dasgupta and Stiglitz 1988) Enhances rate of technology development (policy implications congruent with implications of Jin et al 2004) With parametric interdependencies Lowers expected efficacy of the best technology uncovered Broad and instantaneous spillovers lower the expected efficacy of the best technology uncovered. However the expected efficacy of the best technology uncovered with slow and partial spillovers is higher than that without spillovers While our results suggest that increasing spillovers does not always improve outcomes, it would be imprudent to apply these insights to intellectual property policy.…”

“…First, our model helps refine the policy implications of Jin et al (2004). The model in Jin et al examined the impact of spillovers on 'shakeouts,' or events in which a significant number of firms exit an industry.…”

“…More recent work focuses on non-strategic learning-by-doing, in which spillovers do not discourage production or capital investment. Jin et al (2004) consider the impact of spillovers on non-strategic learning-bydoing. Their model suggests that increasing spillovers is an unambiguously desirable policy goal, because they both reduce shakeouts and limit the welfare implications of those shakeouts that occur.…”