the learning curve and competition abstract the problem of duopoly price competition when there is cost reducing learning is examined in an infinite horizon model with stochastic demand shocks it is shown that in a markov perfect equilibrium the long run outcome depends sensitively on the early history of chance events so that either firm may dominate the market or both firms may share the market asymmetric long term outcomes can arise even when both firms are identical it is also shown that a producer with higher long run costs may eventually dominate the market

disruption costs learning by doing and technology adoption abstract we study technology adoption in a dynamic model of price competition adoption involves disruption costs and learning by doing because of disruption costs the adopting firm begins in a market disadvantage which may persist if its rival captures the customers that the adopting firm needs to learn the technology the prospect of future rents by the rival results in i a failure to adopt socially efficient technologies ii an equilibrium preference for technologies that are learned faster but have lower social value and iii more technologies being adopted if more firms enter the market

competition or predation consumer coordination strategic pricing and price floors in network markets although network effects can make predation more likely to succeed we find that the leading anti predation rules may lower or raise efficiency and consumer welfare in network markets we find that a the extensive debates about the correct measure of cost on which to base price floors are unlikely to be productive b the ordover willig rule that is widely thought to be correct in theory but difficult to apply in practice is in fact incorrect in theory and c efficient price floors would have to depend on consumer expectations and coordination processes that are unlikely to be observable in practice

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

learning curve spillovers and market performance this paper examines the effect of learning curve spillovers on market structure and performance we derive a simple characterization of the true marginal cost for a broad class of learning curves and use calculated examples to show that spillovers substantially undercut the barriers to entry erected by proprietary learning unlike the case of cost reducing research and development spillovers also tend to improve market performance the increased efficiency of the industrywide reduction process typically outweighs the decrease in firms incentives to reduce costs by expanding output

the learning curve predation antitrust and welfare an economic definition of predation is applied to a dynamic model of duopoly competition with learning curves it is shown that rational predation occurs in equilibrium although below cost pricing is neither a necessary nor a sufficient indicator of predation a conceptual framework for antitrust analysis of predation shows that a prohibition of predation might help or harm consumer welfare depending on details of market structure although the informational requirements of fashioning an effective legal rule against harmful predation are formidable

the learning curve market dominance and predatory pricing sufficient conditions for id and iid are given in the case of two step learning in which a firm reaches the bottom of its learning curve after just two sales however examples are also constructed for the two step learning case in which neither id nor iid holds it is also shown that in equilibrium iid implies that learning is privately disadvantageous although it is socially advantageous finally introducing avoidable fixed costs and possible exit into the model yields a new theory of predatory pricing based on the learning curve hypothesis

parimutuel contests with strategic risk sensitive bettors abstractexisting models in the parimutuel betting literature typically explain betting data by either assuming a single representative bettor with certain risk preferences or by assuming that a number of risk neutral bettors compete strategically within a game theoretic framework we construct a theoretical framework of parimutuel markets in which we model both strategic interaction and individual bettor risk preferences distinguishing between sophisticated insiders and recreational outsiders we solve this model analytically for the optimal insider betting amount in a static symmetric nash equilibrium a new data set of 126 million individual horse race bets in new zealand from 2006 to 2014 allows us to calibrate the model we find that insiders those betting 100 or more outperform outsiders by 7 5 in terms of realized returns the best fit of the model to the data is obtained when insiders are assumed to be risk neutral and to have an information advantage of 0 08 in probability terms this findin

wright meets markowitz how standard portfolio theory changes when assets are technologies following experience curves abstract we consider how to optimally allocate investments in a portfolio of competing technologies using the standard mean variance framework of portfolio theory we assume that technologies follow the empirically observed relationship known as wright s law also called a learning curve or experience curve which postulates that costs drop as cumulative production increases this introduces a positive feedback between cost and investment that complicates the portfolio problem leading to multiple local optima and causing a trade off between concentrating investments in one project to spur rapid progress vs diversifying over many projects to hedge against failure we study the two technology case and characterize the optimal diversification in terms of progress rates variability initial costs initial experience risk aversion discount rate and total demand the efficient frontier framework is used to visualize technology portfolios and show how feedback results in nonlinear distortions of the feasible set for the two period case in which learning and uncertainty interact with discounting we compare different scenarios and find that the discount rate plays a critical role

bertrand supertraps we study oligopoly price competition between multiproduct firms firms whose products interact in the profit function specifically we focus on the impact of intrafirm product interactions on the level of equilibrium profits this impact may be decomposed in two different ways a a direct effect keeping the competitors actions fixed plus a strategic effect i e through the competitors actions or alternatively b a competitive advantage effect change in firmi only plus an imitation effect change in all other firms we derive conditions such that a the strategic effect more than outweighs the direct effect and conditions such that b the imitation effect more than outweighs the competitive advantage effect bertrand supertraps for example an increase in the degree of economies of scope would increase profits if prices were fixed or if the change were limited to firmi s cost function however if all firms increase the degree of economies of scope then all firms receive lower profits a variety of other applications is considered including learning curves core competencies demand synergies systems competition compatibility bundling network effects switching costs durable goods long term contracts

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

learning by doing organizational forgetting and industry dynamics learning by doing and organizational forgetting have been shown to be important in a variety of industrial settings this paper provides a general model of dynamic competition that accounts for these economic fundamentals and shows how they shape industry structure and dynamics previously obtained results regarding the dominance properties of flrms pricing behavior no longer hold in this more general setting we show that forgetting does not simply negate learning rather learning and forgetting are distinct economic forces in particular a model with learning and forgetting can give rise to aggressive pricing behavior market dominance and multiple equilibria whereas a model with learning alone cannot

the learning curve and optimal production under uncertainty this article examines the implications of the learning curve in a world of uncertainty we consider a competitive firm whose costs decline with cumulative output because the price of the firm s output evolves stochastically future production and cumulative output are unknown and are contingent on future prices and costs we derive an optimal decision rule that maximizes the firm s market value produce when the price exceeds a critical level which is a declining function of cumulative output we show how the shadow value of cumulative production the total value of the firm and the decision to produce depend on the volatility of the price and other parameters uncertainty increases the critical price required for the firm to produce but also increases the value of thefirm thus during periods of high volatility firms facing a learning curve ought to be producing less but are worth more

sacrifice tests for predation in a dynamic pricing model ordover and willig 1981 and cabral and riordan 1997 meet ericson and pakes 1995 abstract to detect the presence of predatory pricing antitrust authorities and courts routinely ask whether a firm sacrifices current profit in exchange for the expectation of higher future profit following the exit of its rival because predatory pricing is an inherently dynamic phenomenon we show in this paper how to construct sacrifice tests for predatory pricing in a modern industry dynamics framework along the lines of ericson and pakes 1995 in particular we adapt the definitions of predation due to ordover and willig 1981 and cabral and riordan 1997 to this setting and construct the corresponding sacrifice tests

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

the learning curve and pricing in the chemical processing industries data on 37 chemical products are used to test a number of hypotheses about the learning curve and industrial price behavior the results document a strong and consistent learning effect learning is found to be a function of cumulated industry output and cumulated investment rather than calendar time standard economies of scale appear significant but small in magnitude relative to the learning effect variations in the slope of the learning curve are linked to differences in r d expenditures and capital intensity market concentration is found to be a strong influence on price flexibility and the timing of learningrelated price changes

collusion and dynamic under investment in quality in a dynamic game of investment in product quality i investigate whether collusive underinvestment equilibria can be supported by the threat of escalation in investment outlays when there are no spillovers underinvestment equilibria exist even though by deviating a firm can gain a persistent strategic advantage when there are strong spillovers underinvestment equilibria fail to exist a weakening of patent protection can thus lead to more investment in equilibrium a nonfragmentation result is shown to hold in all free entry equilibria industry concentration is bounded away from zero no matter how large the market and despite the existence of underinvestment equilibria

investment decisions with economies of scale and learning economists in an antitrust case have at their disposal quite a large bag of tools and truisms but for the most part these are derived from studies of static models in many industries the policy issues concern the implications of firm behavior on market structure and performance over time a case in point is a recent federal trade commission complaint against the dupont corporation the ftc alleged that dupont had engaged in a strategy designed to monopolize the market for titanium dioxide better known as the coloring agent in white paint the alleged strategy was in essence what some would recognize as the boston consulting group story when a firm has a lead in an industry with significant learning economies the firm should price below competitors costs and expand to take further advantage of learning effects and in the process to increase market share this paper summarizes the results of an analysis of dynamic competition with scale and learning effects the research is a preliminary exploration all results are obtained under rather special assumptions about the production technology the effects of experience on costs and the strategic interactions between firms two kinds of strategic behavior are considered in the first case each firm takes the production decisions of competitors as given the nash assumption in the second case firms consider pre emptive capacity investments taking into account that competitors will alter their future investment plans to achieve nonnegative profits we call this a competitive stackelberg cs game using the maximization of net surplus as a socially optimal benchmark neither form of competition yields an efficient outcome when new investment exhibits increasing returns to scale in the absence of learning effects smaller firms in a nash competition have a greater incentive to add new capacity than do larger firms and the equilibrium industry structure approaches equal market shares introducing learning effects in the nash game causes a tendency toward increased concentration but monopoly is not an inevitable consequence the cs game is more competitive than the nash game in the sense that firms compete for the right to invest at each instant of time with identical firms and no learning effects the market structure in a cs equilibrium is indeterminate although the sequence of industry investments is well defined introducing firm specific and nonstochastic learning has a dramatic effect on the cs equilibrium all new investment is undertaken by a single firm even if the learning economies are small moreover the level of output could be lower and price higher in a cs equilibrium than it would be in a nash equilibrium in this sense more competition can lead to a lower rate of output over time

transfer costs spatial arbitrage and testing for food market integration conventional tests for food market integration ask often misleadingly whether prices in different locations move together in this paper an alternative methodology the parity bounds model pbm is developed which uses information on transfer costs in addition to food prices to assess the efficiency of spatial arbitrage monte carlo experiments using data generated by a point space spatial price equilibrium model show the pbm to be statistically reliable an application to philippine rice markets demonstrates that the pbm detects efficient arbitrage when other tests do not

fixed costs matter even when the costs are sunk how firms set prices is key to understanding markets standard economics dictates that the fixed costs of a firm should not affect its prices nonetheless it is common practice for firms to raise their prices after a fixed costs increase we show that firms are correct in doing so if two ubiquitous conditions apply i future profits increase in current sales and ii firms are liquidity constrained