Steven Klepper and Kenneth L. Simons

"Industry Shakeouts and Technological Change"
JEL codes: L1; L13; O31
Keywords: shakeout; innovation; industry evolution; firm survival

Abstract: We analyze the evolution of four new products that experienced an initial rise and then extreme shakeout in their number of manufacturers: automobiles, tires, televisions, and penicillin. Data on entry, exit, and innovation are collected for each product to test theories of industry shakeouts. Hazard analyses indicate that earlier entrants had persistently lower hazards during the shakeouts, which was related to their greater rates of innovation. Our findings suggest shakeouts are not triggered by particular technological or other events but are part of a competitive process in which the most able early entrants achieve dominant market positions through innovation.

Pre-publication pdf copy.