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Submarket Dynamics and Innovation: The Case of the U.S. Tire Industry

Author

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  • Guido Buenstorf
  • Steven Klepper

Abstract

Beginning in 1922, the rate of exit of U.S. tire producers increased sharply and the industry began a severe and protracted shakeout. Just five years earlier, the tire industry experienced a surge in entry that led to a rise of over 80% in the number of producers. We propose an explanation for this episode based on the idea of industry submarkets, which we incorporate in a model of shakeouts. We test this theory and alternative explanations for the surge in entry and exit and the shakeout using a novel data set on patenting in tires and production in the early 1920s of the cord tire, a key innovation we feature in our theory. Our analysis suggests that the development of a new submarket can open up opportunities for entry but also stimulate innovation and in the process reinforce the advantages of the leading incumbents, accentuating the shakeout of producers.

Suggested Citation

  • Guido Buenstorf & Steven Klepper, 2009. "Submarket Dynamics and Innovation: The Case of the U.S. Tire Industry," Papers on Economics and Evolution 2009-15, Philipps University Marburg, Department of Geography.
    • Handle: RePEc:esi:evopap:2009-15
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    2. Roberto Fontana & Lorenzo Zirulia, 2015. "“…then came Cisco, and the rest is history”: a ‘history friendly’ model of the Local Area Networking industry," Journal of Evolutionary Economics, Springer, vol. 25(5), pages 875-899, November.
    3. Jacob Rubæk Holm & Christian Richter Østergaard, 2018. "The high importance of de-industrialization and job polarization for regional diversification," Papers in Evolutionary Economic Geography (PEEG) 1821, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2018.
    4. Apostolos Baltzopoulos & Pontus Braunerhjelm & Ioannis Tikoudis, 2016. "Spin-offs: why geography matters," Journal of Economic Geography, Oxford University Press, vol. 16(2), pages 273-303.
    5. SHIMIZU, Hiroshi & 清水, 洋 & WAKUTSU, Naohiko, 2017. "Spin-Outs and Patterns of Subsequent Innovation: Technological Development of Laser Diodes in the US and Japan," IIR Working Paper 17-14, Institute of Innovation Research, Hitotsubashi University.
    6. Aldo Enrietti & Aldo Geuna & Consuelo R Nava & Pier Paolo Patrucco, 2022. "The birth and development of the Italian automotive industry (1894–2015) and the Turin car cluster [Istruzione tecnica e professionale e progresso industriale dalla fine dell’Ottocento al fascismo]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(1), pages 161-185.
    7. Shimizu, Hiroshi & Wakutsu, Naohiko, 2014. "Entrepreneurial Spin-Outs and Vanishing Technological Trajectory: Laser Diodes in the U.S. and Japan," IIR Working Paper 13-21, Institute of Innovation Research, Hitotsubashi University.
    8. Andrea Morrison & Ron Boschma, 2019. "The spatial evolution of the Italian motorcycle industry (1893–1993): Klepper’s heritage theory revisited," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 28(3), pages 613-634.
    9. SHIMIZU Hiroshi & WAKUTSU Naohiko, 2024. "SBIR, Startups, and Subsequent Technological Development: Laser diodes in the United States and Japan," Discussion papers 24012, Research Institute of Economy, Trade and Industry (RIETI).
    10. Garavaglia Christian & Malerba Franco & Orsenigo Luigi & Pezzoni Michele, 2014. "Innovation and Market Structure in Pharmaceuticals: An Econometric Analysis on Simulated Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(2-3), pages 274-298, April.
    11. Matthew Mitchell & Andrzej Skrzypacz, 2015. "A Theory of Market Pioneers, Dynamic Capabilities, and Industry Evolution," Management Science, INFORMS, vol. 61(7), pages 1598-1614, July.
    12. Guido Buenstorf, 2017. "Schumpeterian Incumbents and Industry Evolution," Economic Complexity and Evolution, in: Andreas Pyka & Uwe Cantner (ed.), Foundations of Economic Change, pages 283-297, Springer.
    13. Buchmann, Tobias & Hain, Daniel & Kudic, Muhamed & Müller, Matthias, 2014. "Exploring the Evolution of Innovation Networks in Science-driven and Scale-intensive Industries: New Evidence from a Stochastic Actor-based Approach," IWH Discussion Papers 1/2014, Halle Institute for Economic Research (IWH).
    14. R. Fontana & L. Zirulia, 2015. "then came Cisco, and the rest is history : a history friendly model of the Local Area Networking industry," Working Papers wp993, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Lalit Manral, 2015. "The demand-side dynamics of entrant heterogeneity," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 401-445, April.
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    17. Zhao Rong & David C. Broadstock & Yuanyuan Peng, 2018. "Initial submarket positioning and firm survival: evidence from the British automobile industry, 1895–1970," Small Business Economics, Springer, vol. 51(4), pages 965-993, December.
    18. Ajay Bhaskarabhatla, 2016. "The Moderating Role of Submarket Dynamics on the Product Customization–Firm Survival Relationship," Organization Science, INFORMS, vol. 27(4), pages 1049-1064, August.
    19. Bilgehan Uzunca & Bruno Cassiman, 2023. "Entry diversion: Deterrence by diverting submarket entry," Strategic Management Journal, Wiley Blackwell, vol. 44(1), pages 11-47, January.
    20. Lalit Manral & Kathryn R. Harrigan, 2023. "Geographic fragmentation and declining dominance: Yet another story of AT&T’s decline in the post-divestiture era," Journal of Evolutionary Economics, Springer, vol. 33(2), pages 605-644, April.

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    More about this item

    Keywords

    Submarkets; Innovation; Shakeouts Length 31 pages;
    All these keywords.

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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