Does AMD Spur Intel to Innovate More?
Ronald L. Goettler
University of Rochester - Simon School of Business
Brett R. Gordon
Northwestern University - Kellogg School of Management
December 16, 2011
Journal of Political Economy, Vol. 119, No. 6, 2011
We estimate an equilibrium model of dynamic oligopoly with durable goods and endogenous innovation to examine the effect of competition on innovation in the PC microprocessor industry. Firms make dynamic pricing and investment decisions while consumers make dynamic upgrade decisions, anticipating product improvements and price declines. Consistent with Schumpeter, we find the rate of innovation in product quality would be 4.2 percent higher without AMD present, though higher prices reduce consumer surplus by $12 billion per year. Comparative statics illustrate the role of product durability and provide implications of the model for other industries.
Number of Pages in PDF File: 54
Keywords: competition and innovation, dynamic oligopoly, durable goods, estimation of dynamic games, microprocessors
JEL Classification: C73, L11, L13, L40, L63
Date posted: January 17, 2008 ; Last revised: June 9, 2014