Agglomeration and clustering over the industry life cycle: Toward a dynamic model of geographic concentration

Research on agglomeration finds that either a higher survival rate of incumbent firms or a higher founding rate of new entrants, or both, can sustain an industry cluster. The conditioning effects of time on the two distinct mechanisms of survival and founding are, however, rarely examined. We argue that the forces driving geographic concentration vary across the industry life cycle. Data from Ontario's winery industry from 1865 to 1974 demonstrates a dynamic model of geographic concentration: agglomeration attracts more new entry in the growth stage only, whereas it contributes to firm survival in the mature stage only. The results not only establish the importance of understanding the temporal dynamics underlying agglomeration externalities, but also provide a possible explanation for the mixed empirical results found in previous studies. Copyright © 2013 John Wiley & Sons, Ltd.     

The effect of the innovative environment on exit of entrepreneurial firms

To foster ‘creative destruction,’ entrants must survive the turbulent conditions they face in their first crucial years in the industry. We investigate how the external knowledge milieu of an entrant, conceptualized as its innovative environment, causes systematic variation in survival patterns. We test our model from 3,431 firms in 33 industries over 80 years. We depict the innovative environment along two knowledge‐related dimensions, namely technology regime and technology intensity. While the aligned state of the innovative environment, where product innovation exists in tandem with abundant innovation opportunities, promotes entrant survival, we find that this beneficial effect is more pronounced for small entrants due to a possible mitigation of scale disadvantages. Copyright © 2006 John Wiley & Sons, Ltd.     

Complementarities and competition: Unpacking the drivers of entrants' technology choices in the solar photovoltaic industry

Entrants in new industries pursue distinct technologies in hopes of winning the technology competition and achieving sustainable competitive advantage. We draw on the complementary assets framework to predict entrants' technology choices in an emerging industry. Evidence from the global solar photovoltaic industry supports our arguments that entrants are more likely to choose technologies with higher technical performance and for which key complementary assets are available in the ecosystem. However, diversifying entrants are more likely to trade off superior performance for complementary asset availability whereas start‐up entrants are more likely to trade off complementary asset availability for superior performance. This difference is largely due to diversifying entrants with pre‐entry capabilities related to the industry. The study offers a novel illustration of how complementarities and competition shape entry strategies. Copyright © 2013 John Wiley & Sons, Ltd.     

Dual clocks: Entry order influences on incumbent and newcomer market share and survival when specialized assets retain their value

Entry order analysis often shows that early entrants to an industry or technical subfield of an industry outperform laggards. Some studies, though, have found that late entrants prevail. This paper tests dual-clock hypotheses of entry order effects on performance, measured both as market share and survival. One entry clock records the entry of all entrants to a new technical subfield within an industry, while a second clock records the entry of industry incumbents. Relative to the appropriate clock, early entrants are predicted to outperform laggards, but when entry is measured on only one clock, the estimated influences may be inaccurate. Error will be particularly likely if a study contains a survivor bias. The study, which finds entry timing trade-offs between market share and survival, is generalizable to cases in which a plausible set of conditions is found.     

Capabilities,technologies, and firm exit during industry shakeout: Evidence from the global solar photovoltaic industry

Research Summary: Explanations of entrants’ survival in an emerging industry are premised on pre‐entry capabilities or technology entry choices prior to the emergence of the dominant design. We consider how these drivers interact to strengthen or nullify firms’ pre‐entry advantage, and facilitate adaptation as the industry evolves. We also expand the treatment of exit by separating dissolution from acquisition, in which firms’ capabilities continue to be utilized in the industry. Studying a recent shakeout in the global solar photovoltaic industry, we find that pre‐entry capabilities and technology choices act in a complementary manner for some firms, thereby enhancing survival, and as buffers against exit for others. Nearly half of exits were via acquisitions, and technology choice at entry played an important role in determining how firms exited. Managerial Summary: New industries are often characterized by intense technology competition that culminates in a dominant technology followed by industry shakeout. Although prior research underscores the central role of technology choice and firm capabilities to survival, we do not actually know how firms with different capabilities and who have made competing technology choices survive an industry shakeout. In this article, we show how entrants’ capabilities and technology choices can act in a complementary manner for some firms, enhancing their chance of survival, and as buffers against failure for others. Moreover, we explain why some firms that do exit are acquired, when others are dissolved.     

Mode of entry and ex-post performance

In this study I develop and empirically test hypotheses delineating how a set of industry- and firm-level factors are differentially associated with postentry performance of de novo and acquisitive entrants. First, I conceptualize structural entry barriers as sunk costs or irrecoverable investments that entrants must make in the entered industry to be competitive vis-à-vis incumbents. I then argue that de novo and acquisitive entrants differ in three important ways: (1) incremental vs. up-front sunk cost investments in overcoming impediments to entry; (2) increasing productive capacity vs. changing ownership in the entered industry; and (3) low vs. high costs of integration when realizing synergies with parent firms. I use the Trinet, FTC-ALB, and Compustat data bases to construct a sample comprising de novo and acquisitive entries made during the period 1980–82. Next, I evaluate postentry survival and growth between 1982 and 1986. Overall, empirical tests provided partial support for the hypotheses, and the explained variance in my models ranged from 17 percent to 37 percent. © 1998 John Wiley & Sons, Ltd.     

Product line strategies of new entrants in an established industry: evidence from the U.S. bicycle industry

A firm's product line breadth in a given market has both benefits and costs; these effects can be more clearly seen by examining not only the number of products a firm offers, but also the degree of complexity that the product line represents. The effects of breadth are particularly important for new entrants in a relatively mature industry and I examine the breadth–survival relation on new entrants in the bicycle industry in the period 1993–98. I find that firms offering a greater number of products, those with very simple and very complex product lines, and those whose product lines have a moderate degree of overlap with rivals have the highest survival rates. Copyright © 2006 John Wiley & Sons, Ltd.     

The importance of being first : The case of prescription drugs in Canada

There is a growing literature on the importance of being first, which suggests that where there is uncertainty about the product quality of late entrants' brands the pioneering brand will retain a competitive advantage. This is consistent with studies of the U.S. drug industry. Using Canadian data for the drug industry it is shown that eliminating quality differences is a necessary but not sufficient condition for late entrants to gain market share. In addition, price competition has to be stimulated. Under these conditions the late entrants have taken up to 100 percent of the pioneering brands market.     

Old technology meets new technology: complementarities,similarities, and alliance formation

Alliance formation is commonplace in many high‐technology industries experiencing radical technological change, where established firms use alliances with new entrants to adapt to technological change, while new entrants benefit from the ability of established players to commercialize the new technology. Despite the prevalence of these alliances, we know little about how these firms choose to ally with specific firms given the range of possible partners they may choose from. This study explores factors that lead to alliance formation between pharmaceutical and biotechnology companies. We focus on the alliance tie as the unit of analysis and argue that dyadic complementarities and similarities directly influence alliance formation. We then introduce a contingency model in which the positive effect of complementarities and similarities on alliance formation is moderated by the age of the new technology firm. We draw theoretical attention to the intersection between levels of analysis, in particular, the intersection between dyadic and firm‐level constructs. We find that a pharmaceutical and a biotechnology firm are more likely to enter an alliance based on complementarities when the biotechnology firm is younger. Another noteworthy finding is that proxies for broad capabilities appear to be at least as effective, if not more so, in predicting alliance formation compared to fine‐grained science and technology‐related indicators, like patent cross‐citations or patent common citations. We conclude by suggesting that future studies on alliance formation need to take into account interactions across levels; for example, how dyadic capabilities interact with firm‐level factors, and the advantages and disadvantages of more or less fine‐grained measures of organizational capabilities. Copyright © 2007 John Wiley & Sons, Ltd.     

All-Unit Discounts and the Problem of Surplus Division

All-unit discounts (AUD) are non-linear pricing schemes whereby buyers who reach a specific quantity threshold get rebates also retroactively for all units bought before. This sets high incentives for buyers to meet the quantity threshold, and may also have foreclosure effects on potential entrants. In a model where an incumbent faces second-period competition by entrants, we show that AUD can indeed be abused to shift rents from entrants. In contrast to exclusive dealing which is usually seen as very similar to AUD, inefficient quantity distortions may arise even with perfect information if and only if there is sufficiently intense competition among potential entrants.     

Indicators of discontinuous technological change: an exploratory study of two discontinuities in the machine tool industry

The objective of this paper is to explore the extent to which a set of indicators of technological and industrial change can act as warning signals for technical change. A particular kind of technical change can give a new substitute such price/performance attributes that it is taken into the reach of mass market segments. Two processes of discontinuous technical change in the machine tool industry are analysed using patent data, bibliometrics, data on new entrants, relative price changes and diffusion data. In the first case (the transition from conventional to CNC machine tools) relative prices and new entrants were the first indicators to react whilst patents and bibliometrics increased in activity in parallel with the large scale diffusion of CNC machine tools. In the second case (the transition from CNC machine tools to flexible manufacturing systems) new entrants and publishing preceded the large scale diffusion by some years. The different patterns between the two cases and between these and what can be found in the literature, suggest that more work needs to be done to understand the conditions under which changes in each of the indicators can be used as a warning signal. The paper is concluded by a brief discussion which may form the basis for some further work in that direction.     

Battle on the Wrong Field? Entrant Type,Dominant Designs,and Technology Exit

Research summary : Startups often compete with diversifying entrants in the technology race to define dominant designs, which can be platform technology‐based or non‐platform technology‐based. However, little research has examined the relative risk of technological exits for startups vs. diversifying entrants in such “dominance battles.” We develop a contingency framework that links a firm's technology exit to its pre‐entry experience and the characteristics of the dominance battle. With a sample of 134 technologies involved in 31 dominance battles in the information technology industry from 1979 to 2007, we show that technologies of startups were more likely than those of diversifying entrants to exit from platform technology‐based dominance battles; however, this relationship did not exist in non‐platform technology‐based dominance battles, or after the emergence of dominant designs. Managerial summary : How can a startup that tries to create a dominant design strategize to survive the fierce technology race? This study demonstrates that choosing the right battlefield is of paramount importance. Two aspects of a battlefield are shown as relevant: the type of technology and the stage of industrial evolution. Our results show that technologies sponsored by startups tend to have higher exit rates than those sponsored by diversifying entrants in dominance battles characterized by platform technologies, but this penalty is not evident in dominance battles characterized by non‐platform technologies or after the emergence of dominant designs. Furthermore, our study suggests that lack of organizational legitimacy, complementary assets, and integrative capabilities may explain why startups have a higher risk of technology exit than diversifying entrants. Copyright © 2017 John Wiley & Sons, Ltd.     

The Hegemonic Behaviorist Cycle

Values relating to technology and technology education, I will argue, can either be co-constructed or imposed. A teacher employing behaviourist methodologies in the classroom, for example, will inculcate within students, a prescribed set of values relating to technology. They can do this in many ways. In an industrial arts model of technology education, teachers will lead students towards an understanding of technology as a process of fabricating prescribed artifacts with a view to increasing their industry standard psychomotor skills. This, they will argue, will help students gain useful employment in that field of industry. At the other end of the continuum, but still set within the behaviourist paradigm, the teacher might insist that the genetic modification of food is necessary in order to create more efficient production systems in agriculture, or that the only truly sustainable way of maintaining an electricity supply to meet current demands is by nuclear power. In these models, the teacher as expert provides the correct solutions to the prescribed questions. I will argue that this model forms the basis of what I will call a “hegemonic behaviourist cycle”. By this I mean that inculcation into a behaviourist system will serve to shape the learners’ actions when setting into practice what has been learned. I will begin by considering the way values can be formed in a behaviourist setting. I will then explore how technology education set within a behaviouristic system serves to produce unthinking students. I will then go on to explore a learning paradigm in which the formation of values relating to technology is seen as a social process. I will present an argument, in line with current educational thought, that a need now exists to abandon current behaviourist pedagogies and move towards a more broad based learning environment. This, I will argue, is necessary for the development of more informed attitudes about the impact that new and emerging technologies can have on individuals, societies and the world. Values relating to technology will be seen, in this model, to be co-constructed rather than imposed.     

Does Entry Size Matter? The Impact of the Life Cycle and Technology on Firm Survival

A wave of empirical studies has recently emerged showing that smaller-scale entry is confronted with a lower likelihood of survival than their larger counterparts. The purpose of this paper is to examine whether the relationship between size of a firm when entering an industry and the likelihood of survival holds under different technological conditions and across the different stages of the industry life cycle. The empirical evidence suggests that the relationship between firm size and the likelihood of survival is shaped by technology and the stage of the industry life cycle. While the likelihood of survival confronting small entrants is generally less than that confronting their larger counterparts, the relationship does not hold for mature stages of the product life cycle, or in technologically intensive products. In mature industries that are still technologically intensive, entry may be less about radical innovation and possibly more about filling strategic niches, thus negating the impact of entry size on the likelihood of survival.     

Entry barriers,release behavior,and multi-product firms in the music recording industry

This article models the product release behavior of multi-product oligopolistic firms in the music recording industry. The model predicts that increasing industry concentration may result in an apportionment of the market among the existing firms, and fewer new product releases. Even though the minimum efficient scale of production in the industry is modest, the apportionment outcome is stabilized by the existence of industry entry barriers that raise the costs of potential competitors or entrants.     

Firm and environmental influences on the mode and sequence of foreign research and development activities

This paper develops an explanation for the mode and sequence of entry that firms select for their international research and development activities. The hypotheses are based on the internalization and evolutionary theory perspectives. I first hypothesize that there is a sequence to the mode of foreign research and development activities initiated. I then discuss two firm capabilities and alternatives which might cause firms to omit parts of the sequence. The context of the study is the foreign research and development activities of incumbents and recent entrants to the Japanese pharmaceutical industry. The results indicate intriguing differences between the motivations of established firms and new entrants in establishing foreign research and development activities. © 1998 John Wiley & Sons, Ltd.     

Decomposing Pioneer Survival: Implications for the Order‐of‐Entry Effect

In contrast to previous studies of pioneer survival that directly compare the survival of market pioneers with later entrants, this paper proposes that a market pioneer, as the first entrant, operates under two distinctly different survival processes, one during the initial monopoly period and another during the later competition period. The two processes of market pioneers need to be separately estimated and compared with the survival process of later entrants. This paper demonstrates a method for decomposing the pioneer's survival and empirically shows how researchers can compare the pioneer survival in two periods with that of later entrants and identify period‐specific advantages of pioneering. Our empirical analysis using data collected from two different types of industries—a low‐tech (i.e., newspaper) industry and several high‐tech industries—reveals several interesting new findings that illustrate the advantages of decomposing pioneer survival. For example, this paper shows that when treating first‐mover survival as a single process, one can only find an oversimplified pattern showing that first movers have a survival chance equal to that of second movers in the newspaper industry, but a lower one than the second movers in high‐tech industries. However, when analyzing the first‐mover's survival as a sequence of monopoly and competition processes, new insights emerge. In the newspaper industry, the pioneers can have survival advantages in both the monopoly and the competition periods relative to the second movers, and there is a significant survival advantage for those second entrants who delay market entry until the first entrant exits. In contrast, the overall pioneer survival disadvantage identified in the high‐tech industries when treating the survival as a single process comes from the survival disadvantage in the competition period but not in the monopoly period. Furthermore, our empirical analyses using data from two types of industries reveal completely different patterns with regard to the pioneer survival advantage, which suggests that being first can benefit pioneers in both two‐market periods in low‐tech industries but can be extremely risky for pioneers to gain any survival advantages in both two‐market periods in high‐tech industries because the former markets have relatively low market and technology uncertainties, and organizational change is less important; whereas the latter industries have significantly high market and technology uncertainties, technological advances emerge frequently, and firms are required to adapt themselves quickly to a fast‐changing environment.     

Sunk Costs,Accommodation, and the Welfare Effects of Entry

Although economists usually support the unrestricted entry of firms into an industry, entry may lower social welfare if there are setup costs or if entrants have a cost disadvantage. We consider the welfare effects of entry within a standard Cournot model where some of an incumbent firm’s costs are sunk. We find that the range of parameter values over which entry can harm welfare declines monotonically in the fraction of cost that are sunk. Furthermore, the presence of even a small fraction of sunk costs often reverses an assessment that entry harms welfare.     

Modelling the effect of buyer and seller power on the margins of commodity plastics

In the last decade, large sectors of the chemical and plastics industries in the U.S.A. and West Europe have suffered drastic declines in price and gross margin during periods of low use of industry capacity. This paper shows that the major changes in gross margin observed for some commodity plastics can be modelled successfully in terms of the balance between buyer power and seller power. These industries have visibility of prices and industry occupacity and comparable concentrations of sellers and important buyers. The modelling follows Burgess (1982) in expressing buyer and seller power as simple functions of buyer and seller concentrations, industry occupacity and ‘cohesion’ between sellers. This work provides a first practical test of this new approach. It is shown that the model fits the observed data best if the ‘cohesion’ declines as occupacity declines. It is suggested that the approach would be useful in understanding the behaviour of other ‘near-commodity’, capital-intensive businesses, and in helping to distinguish between those businesses where margins are likely to remain relatively stable and those which might face drastically declining margins if the industry occupacity declines or new entrants change the balance between sellers and buyers.     

Third generation new entrants in the European mobile telecommunications industry

This paper focuses on new entrants within the European mobile telecommunications industry. More particularly, the paper identifies those new entrants that emerged from the third-generation (3G) licensing process across Europe before examining how they have fared. Four operators seeking to become new entrants across a range of countries are identified, although only one of them—Hutchison Whampoa trading as ‘3’—is considered to be fully active as a 3G new entrant. It is argued that the success of Hutchison Whampoa to date has been patchy, and that a supportive parent company has significantly contributed to its ability to remain active.