Demand Shocks, Learning-by-Doing and Exclusion

Catherine Bobtcheff, Claude Crampes and Yassine Lefouili

No 18-911, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This note examines how an exogenous industry-wide demand shock, such as the one resulting from the use of governmental subsidies, affects the exclusionary potential of learning-by-doing. We develop a two-period duopoly model in which an increase in a firm's first-period output leads to a decrease in its second-period marginal cost, and apply it to two special scenarios: one in which demand and learning technologies are linear and one in which firms are infinitely impatient. In the first scenario, we establish that a positive demand shock amplifies the exclusionary effect of learning-by-doing if and only if firms are sufficiently asymmetric in their learning abilities. In the second scenario, we emphasize the key role of the demand curvature as a determinant of the effect of a demand shock on the exclusionary potential of learning-by-doing.

Keywords: Demand shocks; learning-by-doing; market structure; exit (search for similar items in EconPapers)
JEL-codes: D11 L13 Q4 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-com
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:32606

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