Working Paper: CEPR ID: DP6160
Authors: David Besanko; Ulrich Doraszelski; Yaroslav Kryukov; Mark Satterthwaite
Abstract: 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 firms' pricing behaviour no longer hold in this more general setting. We show that organizational forgetting does not simply negate learning-by-doing. Rather, learning-by-doing and organizational forgetting are distinct economic forces. In particular, a model with both learning-by-doing and organizational forgetting can give rise to aggressive pricing behaviour, market dominance, and multiple equilibria, whereas a model with learning-by-doing alone cannot.
Keywords: dynamic games; learning-by-doing; organizational forgetting
JEL Codes: C73; D43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| learning-by-doing (J24) | aggressive pricing behavior (L11) |
| organizational forgetting (L29) | aggressive pricing behavior (L11) |
| learning-by-doing + organizational forgetting (L29) | market dominance (L11) |
| organizational forgetting (L29) | multiple equilibria (D50) |
| learning-by-doing + organizational forgetting (L29) | complex pricing behaviors (D40) |
| organizational forgetting (L29) | stifling investment in learning-by-doing (D29) |
| degree of organizational forgetting (L20) | persistence of asymmetries in competitive positions (F12) |