Journal Article

Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation

Jeremy C. Stein

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 64, issue 2, pages 265-288
Published in print April 1997 | ISSN: 0034-6527
Published online April 1997 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.2307/2971712
Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation

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This paper develops a model of repeated innovation with knowledge spillovers. The model's novel feature is that firms compete on two dimensions: (1) product quality, where one firm's innovation ultimately spills over to other firms; and (2) distribution costs, where there are no spillovers across firms and where learning-by-doing on the part of incumbent firms gives them a competitive advantage over would-be entrants. Such firm-specific learning-by-doing has two important consequences: (1) it can in some circumstances dramatically reduce the long-run average level of innovation; (2) it leads to endogeneous bunching, or waves, in innovative activity.

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Subjects: Economics

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