Learning-by-Doing and Cannibalization Effects at Multi-Vintage Firms: Evidence from the Semiconductor Industry

Abstract

Previous studies on the measurement of learning-by-doing emphasize the importance of accounting for multi-vintage effects having an impact on firms’ production costs through economies of scope. This study shows that accounting for cannibalization effects on the demand side is equally important for the adequate measurement of learning. Since multi-vintage firms anticipate the demand-side cannibalization effects in their production optimization, a previously omitted incentive to decrease production is captured having an impact on the measurement of learning by doing. We derive an empirical model from a dynamic oligopoly game of learning-by-doing and allow cannibalization effects to enter from the demand side. Using quarterly firm-level data for the dynamic random access memory semiconductor industry, we find support for cannibalization effects entering firms’ pricing relations resulting in higher estimated learning effects