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Selection and Evolution of Industry

In: Competition and Growth

Author

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  • Jati K. Sengupta

    (University of California)

Abstract

The evolution of industry depends on the selection mechanism, that is, the process of entry and exit of firms and the various factors influencing the entry and exit decisions. Three major factors are most important in the selection process. One is the evolutionary perspective which emphasizes the firm’s ability and competence to alter their market position and hence through strong increasing returns to scale, to alter the market structure significantly. Following the Schumpeterian theory of technological innovations the main source of such increasing returns is the cumulative aspect of innovations, where “size begets size” causes industrial dynamics to be characterized by nonlinear and path dependent processes, where random events like a new technical process may have lasting and irreversible effects on the dynamic evolution of the selection process. Secondly, firms differ significantly in their commitment and ability to innovate. Thus innovations in products and processes are largely endogenous to the firm through R&D investment and learning-by-doing. Thus vigorous innovation has been found to generate more competitive market structures, while innovations requiring large investment generally involve more concentration through large size firms. Also due to the cumulative nature of technological innovations firms that discover new technologies are able to maintain their lead even after the particular technology is obsolete.

Suggested Citation

  • Jati K. Sengupta, 2004. "Selection and Evolution of Industry," Palgrave Macmillan Books, in: Competition and Growth, chapter 2, pages 36-70, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-50531-5_2
    DOI: 10.1057/9780230505315_2
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    Cited by:

    1. Ramakrushna Panigrahi, 2021. "Evaluating Level Efficiency Versus Growth Efficiency in the Indian Automobile Industry in a Non-parametric DEA Approach," Global Business Review, International Management Institute, vol. 22(4), pages 963-976, August.
    2. Ramakrushna Panigrahi, 2021. "Returns to Growth in Indian Automobile Industry: A Non-Parametric Data Envelopment Analysis (DEA) Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(4), pages 747-765, December.
    3. Sahoo, Biresh K & Khoveyni, Mohammad & Eslami, Robabeh & Chaudhury, Pradipta, 2016. "Returns to scale and most productive scale size in DEA with negative data," European Journal of Operational Research, Elsevier, vol. 255(2), pages 545-558.

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