Working paper

Demand Shocks, Learning-by-Doing and Exclusion

Catherine Bobtcheff, Claude Crampes, and Yassine Lefouili

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;

JEL codes

  • D11: Consumer Economics: Theory
  • L13: Oligopoly and Other Imperfect Markets
  • Q4: Energy

Reference

Catherine Bobtcheff, Claude Crampes, and Yassine Lefouili, Demand Shocks, Learning-by-Doing and Exclusion, TSE Working Paper, n. 18-911, April 2018.

See also

Published in

TSE Working Paper, n. 18-911, April 2018