Market Equilibrium Strategies Under Learning by Doing and Spillovers

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 learningcost curve because, it allows the derivation of the linear Markov perfectequilibrium (LMPE). The model yields surprising properties: First and highly policy-relevant is the non-existence except for very few firms and sufficientlylarge spillovers although the corresponding open loop as well as the collusive (cartel)equilibria and the monopoly solution exist. Second, learning could justify arestriction of the number of competitors, in particular if it is very effective. Third, surprising and of theoretical interestis that the linear (and symmetric) Markov perfect equilibrium need not beunique, which is a novel outcome for meaningful economic models