Multiproduct competition, learning by doing and price-cost margins over the product life cycle: Evidence from the DRAM industry

In this study we specify and estimate a structural model of multiproduct firms for the semiconductor industry. In addition, we explicitly consider dynamics over the product life cycle. We find that these two aspects have important implications and provide evidence that (i) Spillover and Economies of Scale effects are lower for multiproduct firms than for single product firms, whereas Learning by Doing effects are slightly higher. We also find that firms follow an intertemporal output strategy. Furthermore, we provide evidence that, once multiproduct firms are introduced, firms behave as if in perfect competition. A single product specification leads to firms behaving even .softer. than Cournot players in the product market. We show that (ii) Learning by Doing, Economies of Scale, and Spillover effects vary over the product cycle. Learning by Doing effects are higher at the end of the life cycle when new production technologies are developed. Economies of Scale are increasing and become smaller (larger) over the life cycle for multiproduct (single product) firms. We specify a dynamic theoretical model and estimate a dynamic structural model by using quarterly firm-level output and costs data as well as industry prices for the Dynamic Random Access Memory (DRAM) industry from 1974 to 1996.