Shakeout in industrial dynamics: new developments, new puzzles

The purpose of this paper is to stress these different visions of shakeout in industrial dynamics, to characterize the new developments that support these alternative visions, and to clarify the puzzles that these visions may present for industry life cycle analyses. The first section provides a synthesis of the basic framework on industry life cycle proposed by Gort and Klepper in the 1980s. The remainder of the paper investigates more recent developments on shakeout, which is considered a central question in the 1990s and 2000s. The second section focuses on a conception of shakeout which is closely linked to technological conditions. The obsolescence of an old technology and the dominance of a new one involves that a new industry replaces the old one. Firms in the old industry have to face a shakeout, and these firms are generally not the main actors of the new industry. The third section focuses on an alternative conception of shakeout which is closely connected to knowledge accumulation and diffusion. A new industry never starts from scratch, as industries generally arise through a transformation of existing industries. When a shakeout occurs, firms that organized the conditions of knowledge accumulation and diffusion may survive, and eventually become the leaders of the newly-born industry. The fourth section makes some concluding remarks.