Does AMD Spur Intel to Innovate More?
Published in Journal of Political Economy, 2011
We develop a dynamic equilibrium model of competition in the market for computer processors that allows for endogenous product innovation and quality-contingent consumer adoption. Consumers are forward-looking and heterogeneous in their willingness to pay for quality. Firms compete in prices and invest in R&D to improve the quality of their products. Using detailed data from 1993 to 2004, we estimate the structural parameters of our model. We then conduct counterfactual experiments to analyze the impact of competition on innovation. We find that the presence of AMD has a significant positive effect on Intel’s rate of innovation. The results suggest that competition is a key driver of technological progress in this industry.
Recommended citation: Goettler, R. L. & Gordon, B. R. (2011). "Does AMD spur Intel to innovate more?." Journal of Political Economy. 119(6), 1141-1200.
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