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Does AMD Spur Intel to Innovate More?

54 Pages Posted: 17 Jan 2008 Last revised: 9 Jun 2014

Date Written: December 16, 2011

Abstract

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.

Keywords: competition and innovation, dynamic oligopoly, durable goods, estimation of dynamic games, microprocessors

JEL Classification: C73, L11, L13, L40, L63

Suggested Citation

Goettler, Ronald L. and Gordon, Brett R., Does AMD Spur Intel to Innovate More? (December 16, 2011). Journal of Political Economy, Vol. 119, No. 6, 2011. Available at SSRN: https://ssrn.com/abstract=1084424 or http://dx.doi.org/10.2139/ssrn.1084424

Ronald L. Goettler (Contact Author)

University of Rochester - Simon School of Business ( email )

Rochester, NY 14627
United States

Brett R. Gordon

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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