investment and market dominance we analyze a model of oligopolistic competition with ongoing investment special cases include incremental investment patent races learning by doing and network externalities we investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments to this end we derive a new comparative statics result for general games with strategic substitutes which applies to our investment game finally we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards or in dynamic games when firms are sufficiently patient

production with learning and forgetting in a competitive environment abstract it has been shown that learning by doing enables firms to reduce marginal production costs but that this effect weakens due to organizational forgetting in order to assess the impact of both learning and forgetting on long term competitiveness and a firm s profitability we model an experience accumulation process with depreciation and consider two competing firms that produce fully substitutable products in this model unit production costs decrease with the firm s experience due to the proprietary learning process as well as the spillover of experience from the competing firm firms can either share or hide from each other their information about the state of their respective experience throughout the game we found that in an equilibrium steady state if the organizational forgetting is sufficiently large larger than the spillover rate value then information sharing compared to information hiding results both in less competitiveness and increased profits for firms conversely if the organizational forgetting is small and the spillover opportunities are relatively large then information sharing promotes both long term competitiveness and firm profits accordingly firms are better off in the long term by deliberately limiting expanding their experience accumulation process whenever organizational forgetting is relatively large small a high ability of proprietary learning however can interfere in this relationship so that limiting the firms experience process will always be compatible with higher profitability

how much did the liberty shipbuilders learn new evidence for an old case study this paper offers some new estimates of the contribution of learning to the rapid increases in labor productivity observed in the construction of liberty ships during world war ii the study exploits new data on physical capital investment and vessel quality constructed from contemporary records held at the national archives estimates of the rate of learning are shown to be sensitive to the inclusion of the new capital data and data on vessel quality provide evidence that part of the measured productivity increases were secured at the expense of quality

pricing competition with inventory considerations in a hazard rate prone market of durables abstract this paper addresses bertrand type pricing competition between two firms producing partially differentiated durables over a finite planning horizon the demand for durables characterized by increasing returns of scale to a price reduction is led by the hazard rate while the effect of inventories on pricing of non durables is widely recognized the management and marketing literature typically overlooks this effect in regard to horizontally competing firms for durables in this paper we show that the pricing trajectory of durables may significantly alter when inventory dynamics are accounted for in particular the price may hike upwards before dropping gradually grow or even stay at the same level over the entire product life while it would only decline if inventories and related costs are disregarded furthermore the well known optimal pricing strategy of following the pattern of sales does not necessarily confirm even for symmetric equilibria when the competing firms have either an inventory surplus or shortage

learning by doing and competition in the early rayon industry in this article i derive a structural econometric model of learning by doing from a dynamic oligopoly game unlike previous empirical models this model is capable of testing hypotheses concerning both the technological nature and strategic implications of learning i estimate the model with firm level data from the early u s rayon industry the empirical results show that there were considerable differences across firms in both proprietary and spillover learning the results also indicate that the two leading firms took their rival s reactions into account when choosing their strategies

the economics of predation what drives pricing when there is learning by doing predatory pricing a deliberate strategy of pricing aggressively in order to eliminate competitors is one of the more contentious areas of antitrust policy and its existence and efficacy are widely debated the purpose of this paper is to formally characterize predatory pricing in a modern industry dynamics framework that endogenizes competitive advantage and industry structure our framework encompasses important phenomena such as learning by doing network effects switching costs dynamic demand and certain types of adjustment costs due to its prominent role in legal cases involving alleged predation we examine learning by doing in more detail we first show that predation like behavior arises routinely in our learning by doing model equilibria involving predation like behavior typically coexist with equilibria involving much less aggressive pricing to disentangle predatory pricing from mere competition for efficiency on a learning curve we next decompose the equilibrium pricing condition and develop alternative characterizations of a firm s predatory pricing incentives we finally measure the impact of these incentives on industry structure conduct and performance we show that forcing a firm to ignore the predatory incentives in setting its price can have a large impact and that this impact stems from eliminating equilibria with predation like behavior along with the predation like behavior however a fair amount of competition for the market is eliminated

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

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

computable markov perfect industry dynamics we provide a general model of dynamic competition in an oligopolistic industry with investment entry andexit toensurethatthereexistsacomputationallytractablemarkov perfectequilibrium we introduce firm heterogeneity in the form of randomly drawn privately known scrap values and setup costs into the model our game of incomplete information always has an equilibrium in cutoff entry exit strategies in contrast the existence of an equilibrium in the ericson and pakes model of industry dynamics requires admissibility of mixed entry exit strategies contrary to the assertion in their article that existing algorithms cannot cope with in addition we provide a condition on the model s primitives that ensures that the equilibrium is in pure investment strategies building on this basic existence result we first show that a symmetric equilibrium exists under appropriate assumptions on the model s primitives second we show that as the distribution of the random scrap values setup costs becomes degenerate equilibria in cutoff entry exit strategies converge to equilibria in mixed entry exit strategies of the game of complete information

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

time dependent or state dependent wage setting evidence from periods of macroeconomic instability administrative data on monthly wages in iceland during 1998 2010 provide new insight into nominal wage rigidity unlike the data used in previous work ours have a higher frequency minimal measurement error and a long sample including a period of substantial macroeconomic instability we find that the monthly frequency of nominal wage changes is 13 percent although nominal wage cuts are rare their frequency rises following a large macroeconomic shock timing of wage changes is both time dependent and state dependent we find evidence of synchronization of adjustment and contracts of fixed duration but also that inflation and unemployment over the wage spell affect the timing of adjustment

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 evolution of market structure when there is a sequence of innovations the paper explores the question of how market structure evolves when there is a sequence of opportunities to innovate does one firm extend its technological superiority to become increasingly dominant or does technological leadership constantly change hands in a process of actionreaction a simple duopoly model is proposed in which the answer to this question depends upon the nature of product market behaviour in that model highly competitive product market behaviour leads to increasing dominance whereas cournot behaviour may lead to action reaction

managing dynamic competition in many important high technology markets including software development data processing communications aeronautics and defense suppliers learn through experience how to provide better service at lower cost this paper examines how a buyer designs dynamic competition among rival suppliers to exploit learning economies while minimizing the costs of becoming locked in to one producer strategies for controlling dynamic competition include the handicapping of more efficient suppliers in procurement competitions the protection and allocation of intellectual property and the sharing of information among rival suppliers jel c73 d44 l10

computing equilibria in the general equilibrium model with incomplete asset markets abstract we present an intuitive homotopy algorithm for the computation of equilibria in the general equilibrium model with incomplete asset markets the central concept is the introduction of utility maximization problems for all but one agent with penalties for transactions on the asset markets we compute equilibria with homotopy path following techniques using the first order conditions of the agents optimization problems and gradually lifting the penalty restriction as the algorithm proceeds finally we present computational results from an implementation of the algorithm showing convincingly that the algorithm is very reliable in general and suitable for large scale computations

a dynamic analysis of the market for wide bodied commercial aircraft this paper uses an empirical dynamic oligopoly model of the commercial aircraft industry to analyse industry pricing industry performance and optimal industry policy a novel feature of the model with respect to the previous literature is that entry exit prices and quantities are endogenously determined in markov perfect equilibrium mpe we find that many unusual aspects of the aircraft data such as high concentration and persistent pricing below static marginal cost are explained by this model we also find that the unconstrained mpe is quite efficient from a social perspective providing only 10 less welfare on average than a social planner would obtain finally we provide simulation evidence that an anti trust policy in the form of a concentration restriction would be welfare reducing

cooperation in games with forgetfulness companies and managers are apt to forget information yet classic game theory analysis assumes that all players have perfect recall this paper expands the literature by examining how introducing forgetfulness into a multiplayer game theoretic framework can help or hinder cooperative behavior we find that forgetfulness impacts the ability of firms to cooperate in countervailing directions on one hand forgetfulness can diminish the ability to punish deviators making cooperation more difficult on the other hand under some conditions forgetfulness can make meting out severe punishments even below stage minimax punishments credible and decrease the ability for players to effectively deviate facilitating cooperation even in circumstances where cooperation cannot be sustained under perfect recall we apply our model to a number of strategic games that commonly appear in the literature this paper was accepted by preyas desai marketing

a study of participation in dynamic auctions this article studies repeated entry and bidding decisions in construction procurement auctions i find evidence in the data that suggests the presence of significant cost savings from entering contracts of the same type i estimate a dynamic auction model to measure the gains to experience for bidders i allow for endogenous entry synergies in entry and unobserved auction heterogeneity i find that a bidder can halve entry costs by focusing on specific contract types an auctioneer can increase competition by awarding contracts of the same type in sequence as a result procurement costs for each contract can be lowered by 7 a saving of 110 000

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

the learning curve in the production of semiconductor memory chips the relevance of the learning curve in the production of semiconductor memory chips is examined it is shown that the learning curve differs across quite similar products such as distinct types of memory chips on the other hand the learning curve does not show significant variation over successive generations of the same type of memory chip it is then shown thatthe interpretation given to the heterogeneity of learning by the effects across chip types and especially the importance of economies of scale is consistent with some stylized facts from the industry

lumpy capacity investment and disinvestment dynamics capacity addition and withdrawal decisions are among the most important strategic decisions made by firms in oligopolistic industries in this paper we develop and analyze a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment disinvestment we use our model to suggest answers to two questions first what economic factors facilitate preemption races second what economic factors facilitate capacity coordination with a series of examples we show that low product differentiation low investment sunkness and high depreciation tend to promote preemption races the same examples also show that low product differentiation and low investment sunkness tend to promote capacity coordination although depreciation removes capacity it might impede capacity coordination finally our examples show that multiple equilibria arise over at least some range of parameter values the distinct structures of these equilibria suggest that firms expectations play a key role in determining whether or not industry dynamics are characterized by preemption races and capacity coordination taken together our results suggest that preemption races and excess capacity in the short run often go hand in hand with capacity coordination in the long run

exchange rate pass through when market share matters the authors investigate the pass through from exchange rates to import prices when firms future demands depend on their current market shares they show that profit maximizing foreign firms may either raise or lower their dollar export prices when the dollar appreciates temporarily i e the pass through may be perverse and that current import prices may be more sensitive to expected future exchange rates than to current exchange rates they present evidence that suggests the behavior of expected future exchange rates may provide a clue to the puzzling recent behavior of u s import prices copyright 1989 by american economic association

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

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

how do switching costs affect market concentration and prices in network industries i investigate the effects of switching costs on the market outcome in network industries using a dynamic duopoly model of price competition in the presence of an outside option i find that the role of switching costs depends on network effects and the outside option without a viable outside option high switching costs can neutralize the tendency towards high market concentration associated with network effects but with a viable outside option switching costs increase market concentration furthermore switching costs lower prices if network effects are modest and there exists a viable outside option but generally raise prices otherwise

firm expansion size spillovers and market dominance in retail chain dynamics we develop and estimate a dynamic game of strategic firm expansion and contraction decisions to study the role of firm size in future profitability and market dominance modeling firm size is important because retail chain dynamics are more richly driven by expansion and contraction than de novo entry or permanent exit additionally anticipated size spillovers may influence the strategies of forward looking firms making it difficult to analyze the effects of size without explicitly accounting for these in the expectations and hence decisions of firms expansion may also be profitable for some firms while detrimental for others thus we explicitly model and allow for heterogeneity in the dynamic link between firm size and profits as well as potential for persistent brand effects through firm specific unobservable factors as a methodological contribution we surmount the hurdle of estimating the model by extending a two step procedure that circumvents solving the game the first stage combines semipar