How Efficient is Dynamic Competition? The Case of Price as Investment

David Besanko, Ulrich Doraszelski and Yaroslav Kryukov

No 23829, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study industries where the price that a firm sets serves as an investment into lower cost or higher demand. We assess the welfare implications of the ensuing competition for the market using analytical and numerical approaches to compare the equilibria of a learning-by-doing model to the first-best planner solution. We show that dynamic competition leads to low deadweight loss. This cannot be attributed to similarity between the equilibria and the planner solution. Instead, we show how learning-by-doing causes the various contributions to deadweight loss to either be small or partly offset each other.

JEL-codes: D21 D43 L13 L41 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Published as David Besanko & Ulrich Doraszelski & Yaroslav Kryukov, 2019. "How Efficient Is Dynamic Competition? The Case of Price as Investment," American Economic Review, vol 109(9), pages 3339-3364.

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