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Economics of Industry Paper
Product Innovation and Persistence of Leadership: Theory with Evidence from the Semiconductor Industry
Harald Gruber
June 1990
Paper No' EI 02:
Full Paper (pdf)

Tags: vertical product differentiation; semiconductor industry; learning by doing; market shares; time profile.

This paper sets out to model the evolution of market shares in the semiconductor industry. The time profile of market shares for different firms in this industry has shown a striking regularity over successive generations of products. In a model of vertical product differentiation three distinct patterns of market shares emerge as an equilibrium outcome, reflecting three distinct strategies in respect of timing of entry into new generations. The main novelty of the model developed here, relative to the existing literature on vertical product differentiation, lies in the incorporation of 'learning by doing'.