Industry life cycles as an underlying source of continuous change

Abstract

Continuous change is driven by a complex interaction of various forces, among them the endogenous evolution of industries. The entry and exit patterns of firms, the emergence of new technologies, and the application of competitive strategies create a complex picture with multilayered dynamics of change. In order to develop successful strategies coping with this type of change, it is necessary to fully analyze and understand the evolution of industries. This chapter seeks to provide a broad and solid academic perspective on industrial dynamics in the sense of industry life cycles-both in empirical and in theoretical terms. It puts a particular focus on research following the footsteps of Steven Klepper; two of his most seminal papers are examined in detail, and five related theories explaining a shakeout during the course of an industry’s evolution are discussed. The chapter then presents a new line of reasoning taking into account that certain industries emerge through a combination of distinct know-how components from other industries and as a mixture of products and services. Such industries are particularly attractive for specific groups of market entrants, especially diversifying firms.