Research & Publications
The Learning Curve in a Competitive Industry
1997, Rand (Bell) Journal of Economics
Eric Bennett Rasmusen, Emmanuel Petrakis, Santanu Roy
We consider the learning curve in an industry with free entry and exit and price-taking firms. A unique equilibrium exists if the fixed cost is positive. Although equilibrium profits are zero, mature firms earn rents on their learning, and if costs are convex, no firm can profitably enter after the date the industry begins. Under some cost and demand conditions, however, firms may have to exit the market despite their experience gained earlier. Furthermore, identical firms facing the same prices may produce different quantities. The market outcome is always socially efficient, even if it dictates that firms exit after learning. Finally, actual and optimal industry concentration does not always increase in the intensity of learning.
Rasmusen, Eric Bennett, Emmanuel Petrakis, and Santanu Roy (1997), "The Learning Curve in a Competitive Industry," The RAND Journal of Economics, Vol. 28, Summer, 248-268.