We have greatly benefitted from the comments and suggestions of a co-editor and two anonymous referees. We are also indebted to Lanier Benkard, Luis Cabral, Jiawei Chen, Stefano Demichelis, Michaela Draganska, Ken Judd, Pedro Marin, Ariel Pakes, Michael Ryall, Karl Schmedders, Chris Shannon, Kenneth Simons, Scott Stern, Mike Whinston, and Huseyin Yildirim as well as the participants of various conferences. Guy Arie and Paul Grieco provided excellent research assistance. Besanko and Doraszelski gratefully acknowledge financial support from the National Science Foundation under Grant 0615615. Doraszelski further benefitted from the hospitality of the Hoover Institution during the academic year 2006–2007. Kryukov thanks the General Motors Center for Strategy in Management at Northwestern's Kellogg School of Management for support during this project. Satterthwaite acknowledges gratefully that this material is based on work supported by the National Science Foundation under Grant 0121541.
Learning-by-Doing, Organizational Forgetting, and Industry Dynamics
Article first published online: 8 APR 2010
© 2010 The Econometric Society
Volume 78, Issue 2, pages 453–508, March 2010
How to Cite
Besanko, D., Doraszelski, U., Kryukov, Y. and Satterthwaite, M. (2010), Learning-by-Doing, Organizational Forgetting, and Industry Dynamics. Econometrica, 78: 453–508. doi: 10.3982/ECTA6994
- Issue published online: 8 APR 2010
- Article first published online: 8 APR 2010
- Manuscript received February, 2007; final revision received June, 2009.
- Dynamic stochastic games;
- Markov-perfect equilibrium;
- organizational forgetting;
- industry dynamics;
- multiple equilibria
Learning-by-doing and organizational forgetting are empirically important in a variety of industrial settings. This paper provides a general model of dynamic competition that accounts for these fundamentals and shows how they shape industry structure and dynamics. We show that forgetting does not simply negate learning. Rather, they are distinct economic forces that interact in subtle ways to produce a great variety of pricing behaviors and industry dynamics. In particular, a model with learning and forgetting can give rise to aggressive pricing behavior, varying degrees of long-run industry concentration ranging from moderate leadership to absolute dominance, and multiple equilibria.