Learning, diffusion and the industry life cycle
AbstractAn industry typically experiences initial mass entry and later shakeout of producers over its life cycle. It can be explained as a competitive equilibrium outcome driven by the dynamic interaction between technology progress and demand diffusion. When a new product is introduced, high-income consumers tend to adopt it first. Technology then improves with cumulative output and demand growth generates S-shaped diffusion as the product penetrates lower-income groups. Eventually fewer new adopters are available and the number of firms starts to decline. It is shown that faster technological learning, higher mean income or larger market size contributes to faster demand diffusion and earlier industry shakeout. Empirical studies on the US and UK television industries as well as ten other US industries confirm the theoretical findings. ; Alternate title: Income distribution, market size and the evolution of industry
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Bibliographic InfoPaper provided by Federal Reserve Bank of Kansas City in its series Payments System Research Working Paper with number PSR WP 04-01.
Date of creation: 2006
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-21 (All new papers)
- NEP-ENT-2004-10-21 (Entrepreneurship)
- NEP-INO-2004-10-21 (Innovation)
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