The life cycle of the U.S. tire industry

Martin A. Carree*, A. Roy Thurik

*Corresponding author for this work

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    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 casts. 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.
    Original languageEnglish
    Pages (from-to)254-278
    Number of pages25
    JournalSouthern Economic Journal
    Issue number2
    Publication statusPublished - Oct 2000

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