THE LEARNING-CURVE IN A COMPETITIVE INDUSTRY

We consider the learning curve in an industry with free entry and exit and price taking firms. A unique equilibrium exists if the fixed cost is positive, Although equilibrium profits are zero, mature firms earn rents on their learning, and if costs are convex, no firm can profita bly enter after the date the industry begins. Under same cost and dema nd conditions, however firms may have to exit the market despite their experience gained earlier Furthermore, identical firms facing the sam e prices may produce different quantities. The market outcome is alway s socially efficient, even if it dictates that firms exit after learni ng. Finally, actual and optimal industry concentration does not always increase in the intensity of learning.