"Testing dynamic oligopolistic interaction: evidence from the semiconductor industry"
JEL codes: L13, L63, C73
Keywords: oligopoly, dynamic games, semiconductor industry
Abstract: The objective of this paper is to test whether firms in the Dynamic Random Access Memory (DRAM) industry take the intertemporal strategic effect of their contemporaneous output decision on their rivals' future output decision into account or whether they precommit themselves to a production plan. Learning-by-doing and spillovers are present in this industry and introduce an intertemporal component to firms' strategies. A simplified version of Jarmin's (1994) dynamic oligopolistic model is applied to firm-level data. Demand and pricing relations for five DRAM generations are estimated. The empirical results show that firms behave strategically and price-cost margins are likely overestimated in a precommitment specification.