Industry Life Cycles in General Equilibrium

29 Pages Posted: 15 Jul 2024

See all articles by Laurent Cavenaile

Laurent Cavenaile

University of Toronto at Scarborough; University of Toronto - Rotman School of Management

Ruben Gaetani

University of Toronto - Rotman School of Management

Pau Roldan-Blanco

Banco de España

Tom Schmitz

Queen Mary University of London

Date Written: February 01, 2024

Abstract

Technological breakthroughs shape the life cycle of industries. Using patent data, we show that the ICT Revolution of the late 1980s generated new technological opportunities across non-ICT industries, leading to an initial phase of rapid growth in patenting and product innovation. Eventually, however, this gave way to a shakeout, characterised by a fall in the number of patenting firms and a greater prevalence of process innovation. To capture these patterns, we build a general equilibrium model of industry life cycles, featuring endogenous innovation choices and oligopolistic competition between an endogenously determined number of heterogeneous firms within each industry. We then use our model to study the welfare consequences of different R&D subsidy policies. Preliminary results show that subsidies have non-monotonic implications for welfare and accelerate life cycles.

Keywords: Industry Life Cycles, Product Innovation, Process Innovation, ICT, Technology

JEL Classification: E22, L13, L22, O31

Suggested Citation

Cavenaile, Laurent and Gaetani, Ruben and Roldan-Blanco, Pau and Schmitz, Tom, Industry Life Cycles in General Equilibrium
(February 01, 2024). Rotman School of Management Working Paper No. 4892207, Available at SSRN: https://ssrn.com/abstract=4892207 or http://dx.doi.org/10.2139/ssrn.4892207

Laurent Cavenaile

University of Toronto at Scarborough ( email )

1265 Military Trail
Scarborough, Ontario M1C 1A4
Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Ruben Gaetani

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Pau Roldan-Blanco

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Tom Schmitz (Contact Author)

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

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