Income Distribution, Market Size and the Evolution of Industry

An industry typically experiences initial mass entry and later shakeout of producers over its life cycle. However, the timing of the evolution varies substantially across markets. By exploring the dynamic interactions between technology progress and demand diffusion, our theory suggests that the cross-market differences of industrial evolution are largely the result of underlying demand factors. Particularly, higher consumer income or larger market size tends to drive faster demand diffusion and earlier industry shakeout. Empirical studies on the US and UK television industries as well as evidence from twenty other US industries support the theoretical findings. (Copyright: Elsevier)