Shakeouts

Technological Change and Firm Survival in New Manufacturing Industries

Abstract of PhD Thesis
Kenneth L. Simons
Carnegie Mellon University
16 August 1995

New manufactured products commonly experience a rise in number of producers followed by a "shakeout" in which the number of firms drops off. Several recent theories have depicted shakeouts as a consequence of technological change. Hence, the theories posit relationships between technology and the determinants of market structure. To examine these relationships, longitudinal empirical tests related to technology, entry, survival, and profits are carried out based on the theories in four products with severe shakeouts: automobiles, tires, televisions, and penicillin. The statistical survival analyses used involve methodological innovations.

Individual technological events, such as refinement inventions or dominant designs, apparently did not trigger the shakeouts. Rather, some gradual process continually increased competitive pressure, eventually making entry untenable. Meanwhile, exit continued at a roughly constant aggregate rate. The combination of decreased entry and continued exit caused the number of firms to fall. Survivors from the earliest entrants came to dominate in the long run, driving out most other firms. The sources of early-mover advantage are difficult to disentangle, but available evidence concurs that some technology-related source contributed at least part of the advantage in these four products. Indeed, the four product industries turn out to have been some of the most technology-intensive industries of their times.

To help confirm the findings in a broad sample, novel longitudinal survival data on forty-nine products are used. Entry and survival patterns concur with the four-product findings, indicating that shakeouts tend to involve cessation of entry and an early-mover advantage.

Copyright ©1995 by Kenneth L. Simons.

Rev. 17 Dec. 1995