Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/32664
Authors: 
Buenstorf, Guido
Klepper, Steven
Year of Publication: 
2009
Series/Report no.: 
Papers on economics and evolution 0915
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.
Subjects: 
Submarkets
Innovation
Shakeouts
JEL: 
L65
R12
R30
Document Type: 
Working Paper

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