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Monopoly behavior with learning effects and capacity constraints
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Abstract(s)
Using a model motivated by the adoption of new process technology in the semiconductor industry, this paper analyzes dynamic monopoly behavior with endogenous learning-by-doing and capacity constraints. The analysis shows that the monopoly invests in learning early-on by producing at higher rates than the static optimum. In addition, it invests in more manufacturing capacity than the static optimum in order to be able to learn faster. Furthermore, in order to prevent prices from falling too rapidly it leaves some capacity idle as the technology matures and learning externalities becomes negligible. Finally, the monopoly may set price below marginal cost when demand is large or growing rapidly.
Description
Keywords
Dynamic Monopoly Behavior Learning-by-Doing Semiconductor Industry
Pedagogical Context
Citation
Cabral, Ricardo (2008). Monopoly behavior with learning effects and capacity constraints, "Working Paper Series", 6, 23 pp.. Ponta Delgada: Universidade dos Açores, CEEAplA-A.