Premium
The Life Cycle of the U.S. Tire Industry
Author(s) -
Carree Martin A.,
Thurik A. Roy
Publication year - 2000
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2000.tb00336.x
Subject(s) - unit (ring theory) , profit (economics) , competition (biology) , unit cost , industrial organization , economics , profit margin , microeconomics , limit (mathematics) , business cycle , econometrics , business , mathematics , macroeconomics , finance , ecology , mathematical analysis , mathematics education , biology
We introduce a new theory of industry evolution. According to our model, the nonmonotonicity in firm numbers found in many young industries is a consequence of the gradual decline in unit costs. Early stages of the industry life cycle, when unit costs and profit margins are high, display positive net entry rates. In later stages, declining unit costs and increasing competition limit the market room for (fringe) firms accumulating in a shakeout. The model explains paths of output, price level, and firm numbers using a recursive system of equations. We apply the model to the U.S. tire industry.