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Market equilibrium strategies under learning by doing and spillovers

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  • Eigruber, Markus
  • Wirl, Franz
Abstract
We investigate intertemporal strategic interactions if monopolies, cartels, or oligopolies benefit from firm internal as well as external learning by doing. Our analysis is carried out for a linear learning cost curve, which allows the derivation of the linear Markov perfect equilibrium (LMPE). The model yields surprising properties: First and highly policy-relevant is the non-existence of equilibria except for very few firms and sufficiently large spillovers, although the corresponding open loop as well as the collusive (cartel) equilibria and the monopoly solution exist. This analytical result corroborates the empirical evidence on the many bankruptcies in the solar photovoltaic market. Second, from a policy perspective, learning could justify a restriction on the number of competitors in the marketplace, in particular if it is very effective. Third, surprising and of theoretical interest is that the linear (and symmetric) Markov perfect equilibrium need not be unique, which is a novel outcome for meaningful economic models.

Suggested Citation

  • Eigruber, Markus & Wirl, Franz, 2024. "Market equilibrium strategies under learning by doing and spillovers," Energy Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:eneeco:v:131:y:2024:i:c:s0140988324000550
    DOI: 10.1016/j.eneco.2024.107347
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    More about this item

    Keywords

    Learning by doing; Differential game; Competition; Spillovers; Solar PV; Linear Markov perfect equilibrium;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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