Cumulative Investment and Spillovers in the Formation of Technological Landscapes

Gilles Duranton

Journal of Industrial Economics, 2000, vol. 48, issue 2, 205-213

Abstract: In this paper, the evolution of product differentiation in industries is modeled as the result of a cumulative cost‐reduction process subject to spillovers in a differentiated oligopoly. Our results suggest that the long‐run outcome is dependent on the intensity of spillovers and the shape of their diffusion function. With weak spillovers, firms dig their niche over time, differentiation remains important and cost‐reduction keeps going. By contrast, if spillovers are strong and have a concave diffusion function, firms gradually use more similar technologies. This standardization process involves less and less investment. For spillovers of intermediate strength, complex technological landscapes may arise.

Date: 2000
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