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The Pre-Producers

Author

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  • Boyan Jovanovic

Abstract

While a start-up firm waits for its sales to materialize, it is a "pre-producer". This waiting period represents a special kind of entry cost. This paper studies how such entry costs influence the several stages of an industry's life cycle. Assuming that the production hazard is rising in the initial stages of pre-production, industry equilibrium entails an eventual "shakeout" of pre-producers as they are squeezed out by the producers who drive industry price down. This seems to fit the experience of the early automobile industry and of the recent dot.com wave

Suggested Citation

  • Boyan Jovanovic, 2004. "The Pre-Producers," 2004 Meeting Papers 91, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:91
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    References listed on IDEAS

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    1. Jovanovic, Boyan & Rosenthal, Robert W., 1988. "Anonymous sequential games," Journal of Mathematical Economics, Elsevier, vol. 17(1), pages 77-87, February.
    2. Boyan Jovanovic & Peter L. Rousseau, 2001. "Why Wait? A Century of Life before IPO," American Economic Review, American Economic Association, vol. 91(2), pages 336-341, May.
    3. Jovanovic, Boyan & MacDonald, Glenn M, 1994. "The Life Cycle of a Competitive Industry," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 322-347, April.
    4. Michael Gort, 1962. "Diversification and Integration in American Industry," NBER Books, National Bureau of Economic Research, Inc, number gort62-1, April.
    5. Steven N. Kaplan & Per Strömberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 281-315.
    6. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
    7. Pastor, Lubos & Veronesi, Pietro, 2006. "Was there a Nasdaq bubble in the late 1990s?," Journal of Financial Economics, Elsevier, vol. 81(1), pages 61-100, July.
    8. Pakes, Ariel & Schankerman, Mark A., 1978. "The Rate of Obsolescence of Knowledge, Research Gestation Labs, and the Private Rate of Return to Research Resources," Working Papers 78-13, C.V. Starr Center for Applied Economics, New York University.
    9. Mariana Mazzucato, 2002. "The PC Industry: New Economy or Early Life-Cycle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 318-345, April.
    10. David Dranove & David Meltzer, 1994. "Do Important Drugs Reach the Market Sooner?," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 402-423, Autumn.
    11. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    12. Lubos Pástor & Pietro Veronesi, 2005. "Rational IPO Waves," Journal of Finance, American Finance Association, vol. 60(4), pages 1713-1757, August.
    13. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
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    Cited by:

    1. Chung-Yi Tse, 2008. "Diffusion with variable production lead times," Journal of Economics, Springer, vol. 93(2), pages 177-202, March.
    2. Zhu Wang, 2007. "Technological Innovation and Market Turbulence: The Dot-com Experience," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 78-105, January.

    More about this item

    Keywords

    Exit; hazard rates; learning curves;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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