Technological extinctions of industrial firms: An inquiry into their nature and causes

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Citation: Steven Klepper, Kenneth L Simons (1997) Technological extinctions of industrial firms: An inquiry into their nature and causes. Ind Corp Change (RSS)
DOI (original publisher): 10.1093/icc/6.2.379
Semantic Scholar (metadata): 10.1093/icc/6.2.379
Sci-Hub (fulltext): 10.1093/icc/6.2.379
Internet Archive Scholar (fulltext): Technological extinctions of industrial firms: An inquiry into their nature and causes
Tagged: Business (RSS) Economics (RSS), Innovation (RSS)

Summary (Abstract)

Steven Klepper and Kenneth Simons' article is an attempt to mediate what they argue are three conflicting explanations for "industry shakeouts." As Utterback and Suarez (1993) show (and as population ecologists have shown more widely) industries often see a growth of the number of rims until there is a shakeout when the number of firms tends to drop precipitously. Klepper and Simons point to three arguments in the literature:

  • Jonavic and MacDonald (1994) who argue that shakeouts are predicted by some major innovation that most firms in an industry are unable to catch up to and to develop follow-on innovations (i.e., the innovative gamble hypothesis).
  • Utterback and Suarez (1993) who predict that shakeouts are preceded by the emergence of a dominant design which other firms and a switch from product innovation to process innovation which will tend to favor fewer larger firms (i.e., the dominant design hypothesis).
  • Klepper (1996) who argues that increasing returns from R&D cause entry to eventually "dry up" and to lead to a shakeout (i.e., the increasing returns hypothesis).

Klepper abd Simon go into extreme depth in a careful treatment of four different industries: automobiles, tires, televisions, and penicillin and carefully tests what each theory would predict. In the process, they take issue with some of the designs that Utterback and Suarez (1993) refer to as dominant or argue that they came at the wrong time to predict the shakeout.

Essentially, the paper ends with a list of 7 items synthesized from the data that describe the nature of change its relationship to technology:

  1. Entry was concentrated early
  2. All four products experienced prolonged shakeouts.
  3. Early entrants generally came to dominant each of the four products
  4. Industry leaders dominated product and process innovation in the four products
  5. Individual innovations rarely stood out above the overall ongoing technical advance in each products
  6. Product innovation started to decline about the start of the shakeouts in autos and tires but increased after the start of the shakeouts in television and penicillin.
  7. Process innovation rose for many years beginning at or prior to the start of the shakeouts in autos and tires, whereas process innovation in televisions and penicillin was greatest initially and then declined over time.

None of the theories predict all perfectly but Klepper and Simon conclude that, "overall, the evidence is supportive of an R&D-related dynamic of increasing returns but suggests that the increasing returns dynamic pertained to product as well as process innovation and was not consistently the driving force behind patterns of product and process innovation.

Theoretical and Practical Relevance

Klepper and Simons' article has been cited about 150 times in the innovation sub-literature on technological innovation and industry dynamics.