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

Guido Buenstorf and Steven Klepper

Papers on Economics and Evolution from Philipps University Marburg, Department of Geography

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.

Keywords: Submarkets; Innovation; Shakeouts Length 31 pages (search for similar items in EconPapers)
JEL-codes: L65 R12 R30 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-com, nep-ent, nep-his, nep-ino and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Submarket dynamics and innovation: the case of the US tire industry (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:esi:evopap:2009-15

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