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Income Distribution, Market Size and the Evolution of Industry

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  • Zhu Wang

    (Federal Reserve Bank of Kansas City)

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Abstract

An industry typically experiences initial mass entry and later shakeout of producers over its life cycle. However, the timing of the evolution varies substantially across markets. By exploring the dynamic interactions between technology progress and demand diffusion, our theory suggests that the cross-market differences of industrial evolution are largely the result of underlying demand factors. Particularly, higher consumer income or larger market size tends to drive faster demand diffusion and earlier industry shakeout. Empirical studies on the US and UK television industries as well as evidence from twenty other US industries support the theoretical findings. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2007.10.005
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 11 (2008)
Issue (Month): 3 (July)
Pages: 542-565

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Handle: RePEc:red:issued:07-110
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Keywords: Product diffusion; Industry life cycle; Shakeout;

Find related papers by JEL classification:

  • D30 - Microeconomics - - Distribution - - - General
  • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
  • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

References listed on IDEAS
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  1. Rafael Rob, 1991. "Learning and Capacity Expansion under Demand Uncertainty," Review of Economic Studies, Oxford University Press, vol. 58(4), pages 655-675.
  2. Grossman, G.M. & Helpman, E., 1989. "Endogenous Prduct Cycles," Papers 144, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Kiminori Matsuyama, 2000. "The rise of mass consumption societies," LSE Research Online Documents on Economics 6656, London School of Economics and Political Science, LSE Library.
  4. Nancy L. Stokey, 1991. "The Volume and Composition of Trade Between Rich and Poor Countries," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 63-80.
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  7. Boyan Jovanovic & Peter L. Rousseau, 2002. "Moore's Law and Learning-By-Doing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 346-375, April.
  8. Richard J. Sullivan & Zhu Wang, 2005. "Internet banking: an exploration in technology diffusion and impact," Payments System Research Working Paper PSR WP 05-05, Federal Reserve Bank of Kansas City.
  9. Zhu Wang, 2005. "Technological innovation and market turbulence: the dot-com experience," Payments System Research Working Paper PSR WP 05-02, Federal Reserve Bank of Kansas City.
  10. Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August.
  11. Jovanovic, B. & MacDonald, G.M., 1992. "The Life-Cycle of Competitive Industry," Papers 92-09, Rochester, Business - Financial Research and Policy Studies.
  12. Evans, David S., 1986. "Tests of Alternative Theories of Firm Growth," Working Papers 86-36, C.V. Starr Center for Applied Economics, New York University.
  13. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September.
  14. Zhu Wang, 2006. "Learning, diffusion and the industry life cycle," Payments System Research Working Paper PSR WP 04-01, Federal Reserve Bank of Kansas City.
  15. Rebecca Achee Thornton & Peter Thompson, 2001. "Learning from Experience and Learning from Others: An Exploration of Learning and Spillovers in Wartime Shipbuilding," American Economic Review, American Economic Association, vol. 91(5), pages 1350-1368, December.
  16. Alessandro Barbarino & Boyan Jovanovic, 2004. "Shakeouts and Market Crashes," NBER Working Papers 10556, National Bureau of Economic Research, Inc.
  17. Shlomo Kalish, 1983. "Monopolist Pricing with Dynamic Demand and Production Cost," Marketing Science, INFORMS, vol. 2(2), pages 135-159.
  18. Horvath, Michael & Schivardi, Fabiano & Woywode, Michael, 2001. "On industry life-cycles: delay, entry, and shakeout in beer brewing," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1023-1052, July.
  19. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
  20. Audretsch, David B, 1991. "New-Firm Survival and the Technological Regime," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 441-50, August.
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Cited by:

  1. Richard J. Sullivan & Zhu Wang, 2005. "Internet banking: an exploration in technology diffusion and impact," Payments System Research Working Paper PSR WP 05-05, Federal Reserve Bank of Kansas City.
  2. Joachim Kaldasch, 2011. "The Product Life Cycle of Durable Goods," Papers 1109.0828, arXiv.org, revised Sep 2015.
  3. James J. McAndrews & Zhu Wang, 2008. "The economics of two-sided payment card markets: pricing, adoption and usage," Research Working Paper RWP 08-12, Federal Reserve Bank of Kansas City.
  4. Joachim Kaldasch, 2011. "The Experience Curve and the Market Size of Competitive Consumer Durable Markets," EconStor Preprints 59749, ZBW - German National Library of Economics.
  5. Kaldasch, Joachim, 2011. "Evolutionary model of an anonymous consumer durable market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(14), pages 2692-2715.
  6. Zhu Wang & Fumiko Hayashi, 2011. "Product Innovation and Network Survival in the U.S. ATM and Debit Card Industry," 2011 Meeting Papers 725, Society for Economic Dynamics.
  7. Dmitry I. Malakhov & Nikolay P. Pilnik & Igor G. Pospelov, 2015. "Stability of Distribution of Relative Sizes of Banks as an Argument for the Use of the Representative Agent Concept," HSE Working papers WP BRP 116/EC/2015, National Research University Higher School of Economics.
  8. Kaldasch, Joachim, 2012. "Evolutionäre Diffusion und der Produktlebenszyklus von Gebrauchsgütern," EconStor Preprints 59748, ZBW - German National Library of Economics.
  9. Kaldasch, Joachim, 2012. "Evolutionary model of the growth and size of firms," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(14), pages 3751-3769.
  10. Bos, Jaap W.B. & Economidou, Claire & Sanders, Mark W.J.L., 2013. "Innovation over the industry life-cycle: Evidence from EU manufacturing," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 78-91.
  11. Hayashi, Fumiko & Li, Grace & Wang, Zhu, 2015. "Innovation, Deregulation, and the Life Cycle of a Financial Service Industry," Working Paper 15-8, Federal Reserve Bank of Richmond.
  12. Fumiko Hayashi & Zhu Wang, 2009. "Product innovation and network survival in the U.S. ATM and debit card network industry," Research Working Paper RWP 08-14, Federal Reserve Bank of Kansas City.

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