Industry Growth through Spinoffs and Startups

The literature on industry life cycle suggests that there is some underlying mechanism that generates differences in time for industries reaching their peaks. What causes variation in such peak times across industries? In this paper, I use the Japanese Census of Manufacture and investigate (i) whether creation and destruction of submarkets in an industry affect the length of positive net entry periods and subsequent entry rates, (ii) what type of firm is more likely to be actively engaged in a newly created or destructed submarket, and (iii) how reallocation of unrealized opportunities from incumbent firms to spinoff firms affects the entry process. This study reveals that the creation and destruction of a submarket allow an industry to continue attracting new entrants, that startup and spinoff firms are more likely to enter a newly created submarket than incumbent firms, and that new entry is encouraged when unrealized business opportunities are reallocated smoothly.