DP6160 Learning-by-Doing, Organizational Forgetting and Industry Dynamics

Author(s): David Besanko, Ulrich Doraszelski, Yaroslav Kryukov, Mark Satterthwaite
Publication Date: March 2007
Keyword(s): dynamic games, learning-by-doing, organizational forgetting
JEL(s): C73, D43
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6160

Learning-by-doing and organizational forgetting have been shown to be important in a variety of industrial settings. This paper provides a general model of dynamic competition that accounts for these economic fundamentals and shows how they shape industry structure and dynamics. Previously obtained results regarding the dominance properties of firms' pricing behaviour no longer hold in this more general setting. We show that organizational forgetting does not simply negate learning-by-doing. Rather, learning-by-doing and organizational forgetting are distinct economic forces. In particular, a model with both learning-by-doing and organizational forgetting can give rise to aggressive pricing behaviour, market dominance, and multiple equilibria, whereas a model with learning-by-doing alone cannot.