Industry Life Cycles Klepper (1997)

Article Review Ferran Giones

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Introduction
Idea of product life cycle
Emerging from marketing literature. Used to describe the evolution of new industries.

Evolutionary paths
What determines the evolutionary path followed by a new industry?

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The Product Life Cycle

How firms exploit regularities in the evolution of new industries?
Evolutionary stages:
formative, intermediate development, maturity (Williamson 1975). Early fluid state, transition to standardization into a specific and rigid stage (Clark 1985). Embryonic, growing, mature and aging (Dew 1987).

Idea behind:
Market grows rapidly, firm enter, product innovation is key Output slows, entry declines. Number of produces declines, process innovation substitutes product innovation.

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The Product Life Cycle

Views on the PLC (Mueller &Tilton 1969)
New product uncertainty on buyer preferences & technological means. Production process loosely organized need for innovations. Emergence of de facto standards. Dominant design innovation slows producers shakeout
Jovanovic and MacDonald (1994): idea that the ones who fail, exit. New entrants expect economic profits = zero. Diversity of innovation is compromised (Klepper 1996).

Horizontal and vertical view (Stigler 1951)

Introduces view through the vertical integration evolution:
As an industry grows, firms find it profitable to contract specialists.

Also applied to international development, as organizations change as new industries evolve (Vernon 1966).
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Automobiles (case study)

Shakeout process: in 1909 274 firms, in 1929 30. Early vs late cohorts Foreign entrants impact in 1960s
early vs later entrants

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Other products
Typewriters, automobile tires, commercial aircraft, televisions, television tubes, penicillin.
Sharp Shakeouts, after entry in the initial buildup. Stabilized over time. Innovation concentrated early, and shifts from product to process.

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General Patterns
Other research: 46 new products (Gort & Klepper 1982).
Number of producers, Number of patents Price and total output Number of major and minor innovations

Observed inversed U-shape entrants volume. Price reduction related to organizational learning. Mature industries innovation based in technical insights more than market needs (Utterback and Abernathy 1975). Widespread evidence of PLC.
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Alternative Life Cycle Patterns

Petorchemicals non-shakeout: specialized in product not in process. Marketing/Manufacturing firms: raising innovation patterns
Diagnostic imaging instruments: relationship between early entrants and incumbents, symbiosis.

Industries with specialization in sub-industries: business jets and laser, entrants pace sustained as the industry evolves, new sub-industries emerge.

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Opportunities for further research

Why PLC fails to explain some industries as they have evolved? Does innovation shift from product to process? Influence of past experience in firms that enter market, does it helps them to make different types of innovations? What makes and industry evolve towards PLC model? And what not?

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