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The Life Cycle of the U.S. Tire Industry

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  • Martin A. Carree
  • A. Roy Thurik

Abstract

We introduce a new theory of industry evolution. According to our model, the nonmonotonicity in firm numbers found in many young industries is a consequence of the gradual decline in unit costs. Early stages of the industry life cycle, when unit costs and profit margins are high, display positive net entry rates. In later stages, declining unit costs and increasing competition limit the market room for (fringe) firms accumulating in a shakeout. The model explains paths of output, price level, and firm numbers using a recursive system of equations. We apply the model to the U.S. tire industry.

Suggested Citation

  • Martin A. Carree & A. Roy Thurik, 2000. "The Life Cycle of the U.S. Tire Industry," Southern Economic Journal, John Wiley & Sons, vol. 67(2), pages 254-278, October.
    • Handle: RePEc:wly:soecon:v:67:y:2000:i:2:p:254-278
    DOI: 10.1002/j.2325-8012.2000.tb00336.x
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