Does AMD Spur Intel To Innovate More?
Source: Columbia University
The authors of this paper estimate a model of dynamic oligopoly with durable goods and endogenous innovation to examine the effect of competition on innovation in the PC microprocessor industry. Firms make dynamic pricing and investment decisions while accounting for the dynamic behavior of consumers who anticipate product improvements and price declines. They extend the dynamic oligopoly framework of Ericson and Pakes (1995) to incorporate durable goods. Their alternative approach to bounding the state space yields an endogenous long-run rate of innovation.