Industry Shakeout Research Articles

Industry evolution, resilience and regional embeddedness: the case of the Danish microbrewing industry

ABSTRACT Excess capacity and increased competition in the Danish microbrewing industry have created a burgeoning shakeout, which has been accelerated by the Covid-19 crisis. We discuss which types of firms are likely to survive this, specifically, to what extent such firms use regional embeddedness as a survival strategy. Using three different types of data, we demonstrate that firms’ regional and local embeddedness is widely used to shelter them from competition pressures. Moreover, the passion among owners and investors for the sector (and its products) alters the purely economic rationality that generally, according to theoretical predictions, determines whether firms survive industry shakeout.

Practical Applications of An Inside Peek at AI Use in Private Equity

In <b><i>An Inside Peek at AI Use in Private Equity</i></b>, from the Summer 2021 issue of <b><i>The Journal of Financial Data Science</i></b>, <b>Thomas Åstebro</b> of <b>HEC Paris</b> explores the rapid adoption of artificial intelligence (AI) technology among private equity (PE) and venture capital (VC) firms. In particular, he examines AI use among four PE firms: Jolt Capital, Hone Capital, EQT Ventures, and SignalFire. While the use of AI technology ranges from comparatively modest applications, such as screening models, all the way to full-scale employment in end-to-end decision support systems (DSSs), the author argues that even limited use of the technology increases profitability and operational efficiency. He also explores how AI can potentially overhaul how VC firms conduct their day-to-day business and outlines new potential revenue streams and investment strategies enabled by AI. Åstebro predicts that adoption of AI technology among established firms will steadily increase while new, AI-based PE firms will continue to enter the market. Looking ahead, he argues that the influx of investors using AI will lead to competition and eventually an industry shakeout.

Formation mechanism and countermeasures of China&amp;#x02019;s new energy vehicle industry shakeouts

Formation mechanism and countermeasures of China&amp;#x02019;s new energy vehicle industry shakeouts

An Inside Peek at AI Use in Private Equity

The number of private equity (PE) firms that have started to use artificial intelligence (AI) in investment decisions has risen rapidly over the past 10 years. This article provides a detailed account that can serve as a template for others in the industry who wish to make better investment decisions using AI. The news is both good and bad. The increased use of AI in PE and venture capital will greatly increase operational efficiency and transform the ways in which partners perform their work. It will allow for the entry of new firms but will also lead to a technological arms race and is predicted to cause an eventual industry shakeout. TOPICS:Private equity, big data/machine learning, performance measurement Key Findings ▪ The number of private equity firms that have started to use AI is rising rapidly. ▪ Use of AI will greatly transform the deal-making process. ▪ By increasing efficiency, AI will likely cause an industry shakeout.

Firm Resources, Complementary Assets &amp; Survival: Lessons from the Solar Energy Venture Capital Boom

This study develops and tests a set of novel theoretical predictions about the conditions under which key resources undermine new venture success. To do this, we revisit the presumption of investment in core technology innovation and complementary assets in a nascent and rapidly growing industry. Drawing on insights from control of complementary assets and innovative business models, we suggest that key resources for the boom period of industry emergence do not necessarily lead to greater rewards during the industry shakeout. Our empirical analysis of exit of new ventures in the solar energy sector supports our approach: startups with core domain positioning, venture capital investment, and technological innovation are less likely to survive and to exit successfully during the period of industry shakeout. Highlighting an understudied paradox in practical settings, this study offers several contributions to knowledge of firm resources and complementary assets, and motivates new lines of inquiry in technology and business model innovation.

Industry shakeouts and product strategies: lessons from the US laser printer industry

ABSTRACTMany industries experience a shakeout, which occurs when, after an initial increase, the number of firms drops significantly in a short period of time. A shakeout drives changes in the market structure and, thus, accompanying changes in firms’ strategies. In this paper, we explore differences in firms’ product strategies (i.e. product quality improvement, product line management, and product market strategy) before and after the initiation of an industry shakeout, focusing on the role of product exit. In analyzing a sample of US laser printer manufacturers and their products for the period between 1983 and 2002, we find clear differences in firms’ product exit decisions before and after the initiation of a shakeout. With these findings, our study contributes to the understanding of the link between industry shakeouts and firms’ product strategies.

Capabilities, technologies, and firm exit during industry shakeout: Evidence from the global solar photovoltaic industry

Research Summary: Explanations of entrants’ survival in an emerging industry are premised on pre‐entry capabilities or technology entry choices prior to the emergence of the dominant design. We consider how these drivers interact to strengthen or nullify firms’ pre‐entry advantage, and facilitate adaptation as the industry evolves. We also expand the treatment of exit by separating dissolution from acquisition, in which firms’ capabilities continue to be utilized in the industry. Studying a recent shakeout in the global solar photovoltaic industry, we find that pre‐entry capabilities and technology choices act in a complementary manner for some firms, thereby enhancing survival, and as buffers against exit for others. Nearly half of exits were via acquisitions, and technology choice at entry played an important role in determining how firms exited. Managerial Summary: New industries are often characterized by intense technology competition that culminates in a dominant technology followed by industry shakeout. Although prior research underscores the central role of technology choice and firm capabilities to survival, we do not actually know how firms with different capabilities and who have made competing technology choices survive an industry shakeout. In this article, we show how entrants’ capabilities and technology choices can act in a complementary manner for some firms, enhancing their chance of survival, and as buffers against failure for others. Moreover, we explain why some firms that do exit are acquired, when others are dissolved.

Apocalypse Now?

Despite the wishful thinking of those who have long prophesied an imminent surge in demand for clinical pharmacists, the tipping point for healthy supply-demand balance in pharmacy has almost certainly been surpassed. Imprudent overbuilding of pharmacy programs has combined with trends toward increasing automation and consolidation in pharmacy practice to create an existential threat in pharmacy education. Surviving the looming industry shakeout will require schools and colleges of pharmacy to do what our colleagues in practice and the private sector have always done: compete.

Systematic Differences and Random Rates: Reconciling Gibrat’s Law with Firm Differences

A fundamental premise of the strategy field is the existence of persistent firm-level differences in resources and capabilities. This property of heterogeneity should express itself in a variety of empirical “signatures,” such as firm performance and arguably systematic and persistent differences in firm-level growth rates, with low cost firms outpacing high cost firms. While this property of performance differences is a robust regularity, the empirical evidence on firm growth and Gibrat’s law does not support the later conjecture. Gibrat’s law, or the “law of proportionate effect,” states that, across a population of firms and over time, firm growth at any point is, on average, proportionate to size of the firm. We develop a theoretical argument that provides a reconciliation of this apparent paradox. The model implies that in early stages of an industry history. firm growth may have a systematic component, but for much of an industry’s and firm’s history should have a random pattern consistent with the Gibrat property. The intuition is as follows. In a Cournot equilibrium, firms of better “type” (i.e., lower cost) realize a larger market share, but act with some restraint on their choice of quantity in the face of a downward sloping demand curve and recognition of their impact on the market price. If firms are subject to random firm-specific shocks, then in this equilibrium setting a population of such firms would generate a pattern of growth consistent with Gibrat’s law. However, if broader evolutionary dynamics of firm entry, and the subsequent consolidation of market share and industry shake-out is considered, then during early epochs of industry evolution, one would tend to observe systematic differences in growth rates associated with firm’s competitive fitness. Thus, it is only in these settings far from industry equilibrium that we should see systematic deviations from Gibrat’s law.

"Capabilities, Technologies, and Firm Survival during Industry Shakeout"

New industries are typically characterized by a period of emergence, shakeout and maturity. Prior explanations of firm exit during industry shakeout focus on either the role of choosing the technol...

Industry Shakeouts and Product Strategies: The Case of the US Laser Printer Industry

Many industries experience a shakeout, which is a short period of time during which the number of firms drops significantly after an initial increase in the number of firms. Shakeouts cause a chang...

Entry and Shakeout in Dynamic Oligopoly

In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm effi- ciency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model gener- ates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium.

Innovation, Deregulation, and the Life Cycle of a Financial Service Industry

This paper examines innovation, deregulation, and firm dynamics over the life cycle of the U.S. ATM and debit card industry. In doing so, we construct a dynamic equilibrium model to study how a major product innovation (introducing the new debit card function) interacted with banking deregulation drove the industry shakeout. Calibrating the model to a novel dataset on ATM network entry, exit, size, and product offerings shows that our theory fits the quantitative pattern of the industry well. The model also allows us to conduct counterfactual analyses to evaluate the respective roles that innovation and deregulation played in the industry evolution.

Innovation, Deregulation, and the Life Cycle of a Financial Service Industry

This paper examines innovation, deregulation, and firm dynamics over the life cycle of the U.S. ATM and debit card industry. In doing so, we construct a dynamic equilibrium model to study how a major product innovation (introducing the new debit card function) interacted with banking deregulation drove the industry shakeout. Calibrating the model to a novel dataset on ATM network entry, exit, size, and product offerings shows that our theory fits the quantitative pattern of the industry well. The model also allows us to conduct counterfactual analyses to evaluate the respective roles that innovation and deregulation played in the industry evolution.

Innovation, Deregulation, and the Life Cycle of a Financial Service Industry

This paper examines innovation, deregulation, and fi rm dynamics over the life cycle of the U.S. ATM and debit card industry. In doing so, we construct a dynamic equilibrium model to study how a major product innovation (introducing the new debit card function) interacted with banking deregulation drove the industry shakeout. Calibrating the model to a novel data set on ATM network entry,exit, size, and product offerings shows that our theory fits the quantitative pattern of the industry well. The model also allows us to conduct counterfactual analyses to evaluate the respective roles that innovation and deregulation played in the industry evolution.

Entry and Shakeout in Dynamic Oligopoly

In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm efficiency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model generates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium.

Dominant designs, innovation shocks, and the follower's dilemma

A dominant design is thought to usher in a period of intense competition based on cost, causing an often-fierce industry shakeout. We aim to challenge the foundations of the dominant design literature, and develop new insights about the evolution of competition. We argue that strategic repositioning and elevated exit rates are often observed long before the emergence of a dominant design, and that a key cause is the introduction of a particular product for which demand is unexpectedly high (an “innovation shock”). This introduction creates a dilemma for followers, which we suggest is resolved based on followers' comparative adjustment costs. We test implications of these ideas on data from the early U.S. auto industry, treating Ford's Model T as the innovation shock. Copyright © 2013 John Wiley & Sons, Ltd.

Technological discontinuities and the challenge for incumbent firms: Destruction, disruption or creative accumulation?

The creative destruction of existing industries as a consequence of discontinuous technological change is a central theme in the literature on industrial innovation and technological development. Established competence-based and market-based explanations of this phenomenon argue that incumbents are seriously challenged only by ‘competence-destroying’ or ‘disruptive’ innovations, which make their existing knowledge base or business models obsolete and leave them vulnerable to attacks from new entrants. This paper challenges these arguments. With detailed empirical analyses of the automotive and gas turbine industries, we demonstrate that these explanations overestimate the ability of new entrants to destroy and disrupt established industries and underestimate the capacity of incumbents to perceive the potential of new technologies and integrate them with existing capabilities. Moreover, we show how intense competition in the wake of technological discontinuities, driven entirely by incumbents, may instead result in late industry shakeouts. We develop and extend the notion of ‘creative accumulation’ as a way of conceptualizing the innovating capacity of the incumbents that appear to master such turbulence. Specifically, we argue that creative accumulation requires firms to handle a triple challenge of simultaneously (a) fine-tuning and evolving existing technologies at a rapid pace, (b) acquiring and developing new technologies and resources and (c) integrating novel and existing knowledge into superior products and solutions.

The Geography of the British Motorcycle Industry, 1896–2004

Two major agglomerations or clusters (West Midlands and Greater London) have been shown to have been the driving force behind the historical geography of the British motorcycle industry (its distribution over time and the rate at which motorcycle marques entered and exited). A net positive effect on the West Midlands and a net negative effect on the Greater London area were exerted by motorcycle marque exits from the industry (shakeout). Spin-off of new companies was primarily an internal process in the West Midlands and an external process in the Greater London area. The high level of spatial concentration, The rapid rate of technology diffusion, the large number of spin-off firms and the high level of spatial concentration helped to maintain a wide variety of marques over a long time in the British motorcycle industry. However, the result was an industry that was stagnant and increasingly innovation-averse with each successive shakeout period, which eventually ended in its near total collapse.

PRODUCT INTERACTIONS AND INDUSTRY SHAKEOUT

We construct an industry shakeout model based on the Cournot competition of firms each producing a differentiated product and adjusting their output according to the diffusion of their respective product. We investigate the resulting Lotka-Volterra dynamics and present a coexistence region that is a function of the interaction among the products. We show that as the products become less differentiated, the competition intensifies and the coexistence region contracts. The extent of the shakeout depends on the distribution of the competitive interactions among firms in the industry.