Center for Advanced Management




Prof. Dr. Ralph Siebert (Purdue University)


  • Datum: 06.08.2008
    Zeit: 12:30 - 14:00
    Ort: Room 211b, Ludwigstr. 28/VG

The impact of innovation and market demand on market structure
mit Christine Zulehner

We study why the number of firms in the dynamic random access memory semiconductor industry is drastically increasing throughout early memory generations, whereas sharply decreasing for recent generations. This fact is even more surprising since market demand steadily increased over time whereas the pace of innovation continously decreased over time. We estimate a fully dynamic oligopoly model accounting for entry, exit, and learning by doing. We account for serially correlated observed and unobserved state variables and apply the recent two-step estimator by Bajari, Benkard and Levin (2007) using quarterly firm-level data from 1974 to 2004. We find that the interdependence between the increase in market demand and rapidly increasing sunks costs associated with a higher pace of innovation nicely explains the change in market structure. We also confirm that accounting for serially correlated unobservables is a crucial aspect to correct for. In our case, the instrumental variable estimator with a lagged dependent variable performs best when accounting for a serially correlated unobserved state variable.