Learning-by-Doing and Market Performance

Fudenberg, Drew; Tirole, Jean

doi:10.2307/3003653

Cited by 290 publications

(164 citation statements)

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“…Finally, we discuss a dynamic oligopoly that incorporates "learning-by-doing", so that firms become more efficient as they gain experience in the marketplace (Fudenberg and Tirole 1983). In this case, we find that firms' learning processes must exhibit decreasing returns to scale to ensure existence of light-tailed SE.…”

Section: Theoretical Foundations For Se: Approximating Mpementioning

confidence: 99%

Equilibria of dynamic games with many players: Existence, approximation, and market structure

Adlakha

Johari

Weintraub

2015

Journal of Economic Theory

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In this paper we study stochastic dynamic games with many players; these are a fundamental model for a wide range of economic applications. The standard solution concept for such games is Markov perfect equilibrium (MPE), but it is well known that MPE computation becomes intractable as the number of players increases. We instead consider the notion of stationary equilibrium (SE), where players optimize assuming the empirical distribution of others' states remains constant at its long run average. We make two main contributions. First, we provide a rigorous justification for using SE. In particular, we provide a parsimonious collection of exogenous conditions over model primitives that guarantee existence of SE, and ensure that an appropriate approximation property to MPE holds, in a general model with possibly unbounded state spaces. Second, we draw a significant connection between the validity of SE, and market structure: under the same conditions that imply SE exist and approximates MPE well, the market becomes fragmented in the limit of many firms. To illustrate this connection, we study in detail a series of dynamic oligopoly examples. These examples show that our conditions enforce a form of "decreasing returns to larger states"; this yields fragmented industries in the limit. By contrast, violation of these conditions suggests "increasing returns to larger states" and potential market concentration. In that sense, our work uses a fully dynamic framework to also contribute to a longstanding issue in industrial organization: understanding the determinants of market structure in different industries. * The authors are grateful for helpful conversations with

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Section: Theoretical Foundations For Se: Approximating Mpementioning

confidence: 99%

Equilibria of dynamic games with many players: Existence, approximation, and market structure

Adlakha

Johari

Weintraub

2015

Journal of Economic Theory

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“…The formal analysis of the incentives for cooperation in markets with network externalities and dynamic learning e ects is performed in a two period model based on Fudenberg/Tirole (1983). The speci c structure of the model has been chosen for two reasons.…”

Section: Basic Structure Of the Formal Modelmentioning

confidence: 99%

Cooperation and Competition in Markets with Network Externalities or Learning Curves

Morasch

2014

Interfirm Networks

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“…A logical venue for modelling the Lamarckian learning idea in economics is the theory on learning curves (see for example Dosi 1988b, Spence 1981, Fudenberg and Tirole 1984, and the discussion on the Verdoorn effect in Chapter 2). This literature captures the idea that experience with new products or processes leads to higher efficiency in using them.…”

Section: Towards «« Efofmri' Owflry Ttieorymentioning

confidence: 99%

Uneven Growth between Interdependent Economies: An Evolutionary View on Technology Gaps, Trade and Growth.

Verspagen¹

1994

The Economic Journal

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Learning-by-Doing and Market Performance

Cited by 290 publications

References 4 publications

Equilibria of dynamic games with many players: Existence, approximation, and market structure

Equilibria of dynamic games with many players: Existence, approximation, and market structure

Cooperation and Competition in Markets with Network Externalities or Learning Curves

Uneven Growth between Interdependent Economies: An Evolutionary View on Technology Gaps, Trade and Growth.

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