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Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation

Jeremy C. Stein
The Review of Economic Studies
Vol. 64, No. 2 (Apr., 1997), pp. 265-288
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2971712
Page Count: 24
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Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation
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Abstract

This paper develops a model of repeated innovation with knowledge spillovers. The model's novel feature is that firms compete on two dimensions: (1) product quality, where one firm's innovation ultimately spills over to other firms; and (2) distribution costs, where there are no spillovers across firms and where learning-by-doing on the part of incumbent firms gives them a competitive advantage over would-be entrants. Such firm-specific learning-by-doing has two important consequences: (1) it can in some circumstances dramatically reduce the long-run average level of innovation; (2) it leads to endogeneous bunching, or waves, in innovative activity.

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