Abandoning Innovation in Emerging Industries Essay

12575 Words Jul 20th, 2013 51 Pages
Abandoning Innovation in Emerging Industries*

Rajshree Agarwal College of Business University of Illinois at Urbana-Champaign 350 Wohlers Hall, 1206 S. Sixth Street Champaign, IL 61822 Voice: (217) 265-5513 agarwalr@uiuc.edu Barry L. Bayus Kenan-Flagler Business School University of North Carolina CB 3490 Chapel Hill, NC 27599 Voice: (919) 962-3210 Barry_Bayus@UNC.edu Mary Tripsas Harvard Business School Soldiers Field Road Boston, MA 02163 Voice: (617) 495-8407 mtripsas@hbs.edu Preliminary Draft September, 2005

All authors contributed equally and are listed in alphabetical order. The paper has benefited from comments made by seminar participants at the Harvard Business School. All remaining errors are ours.


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Life cycle studies of industries that emerge from new product innovations have consistently documented a relatively smooth pattern in the number of firms: an initial increase during the growth stage, followed by a “shake-out” period, and a final mature period where the number of firms is roughly constant over time (e.g. Gort and Klepper, 1982; Hannan and Freeman, 1977; Klepper and Graddy, 1990). At the same time, scholars have acknowledged the high degree of technological and market uncertainty facing firms that enter emerging industries (Utterback and Abernathy, 1975; Tushman and Anderson, 1986; Rosenkopf and Tushman, 1994; Brown and Eisenhardt, 1997). Related literature on first mover (dis)advantages discusses the risks of pioneering and has documented significant failure rates for pioneering firms (Golder and Tellis, 1993). This work calls into question the smoothness of the initial increase in the number of firms. Do industries experience a smooth take-off in the number of firm, or is there considerable churn and turbulence experienced by early entrants? Is there evidence of a sharp decline in the number of firms during the emergence stage — a “mini shakeout” — and if so, how prevalent is the phenomenon? What distinguishes industries that experience a mini shakeout from those that

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