Technological Extinctions of Industrial Firms: An Inquiry into their Nature and Causes

Abstract

After a buildup in the number of firms, new industries commonly experience a ‘shakeout’ in which the number of firms declines sharply. Three theoretical perspectives on how technological change contributes to industry shakeouts are analyzed. The theories are used to synthesize predictions concerning technological change and industry evolution. The predictions inform an analysis of four US industries that experienced sharp shakeouts: automobiles, tires, televisions and penicillin. Using data on firm participation and innovation from the commercial inception of the four products through their formative eras, we uncover regularities in how the products evolved. The regularities suggest that shakeouts are not triggered by particular technological innovations nor by dominant designs, but by an evolutionary process in which technological innovation contributes to a mounting dominance by some early-entering firms.