Inter-firm knowledge diffusion, market power, and welfare

Colombo, Luca and Labrecciosa, Paola 2012, Inter-firm knowledge diffusion, market power, and welfare, Journal of evolutionary economics, vol. 22, no. 5, pp. 1009-1027, doi: 10.1007/s00191-011-0227-3.

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Title Inter-firm knowledge diffusion, market power, and welfare
Author(s) Colombo, LucaORCID iD for Colombo, Luca
Labrecciosa, Paola
Journal name Journal of evolutionary economics
Volume number 22
Issue number 5
Start page 1009
End page 1027
Total pages 19
Publisher Springer
Place of publication Heidelberg, Germany
Publication date 2012-11
ISSN 0936-9937
Keyword(s) game theory
differential games
knowledge diffusion
learning spillovers
organizational forgetting
Summary We propose an infinite-horizon quantity-setting differential game with learning spillovers and organizational forgetting to analyze the optimal management decisions affecting the evolution of the stock of know-how, and, in turn, the dynamics of productive efficiency. Specifically, we study the long run impact of inter-firm knowledge diffusion on market power, i.e. the ability of a firm to raise the price above the marginal cost, and welfare. We consider two types of processes through which knowledge is acquired: (i) passive learning, or learning-by-doing, where managers do not actively invest in information and (ii) active learning, or learning-by-investing, where managers acquire new and additional information through specific investments in human capital. We show that: under (i), knowledge diffusion reduces market power; under (ii), knowledge diffusion reduces market power as long as learning spillovers are sufficiently important. From a welfare viewpoint, we also show that: under (i), knowledge diffusion is always welfare-enhancing; under (ii), weak spillovers are required in order for knowledge diffusion to be welfare-enhancing.
Language eng
DOI 10.1007/s00191-011-0227-3
Field of Research 140209 Industry Economics and Industrial Organisation
Socio Economic Objective 910203 Industrial Organisations
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
HERDC collection year 2012
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Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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