Technology uncertainty, sunk costs, and industry shakeout

I propose a novel explanation for new industry shakeouts: because of capacity sunk costs and the fear of backing the wrong technology, firms initially invest up to a small capacity, leading to a large number of initial entrants. As the dust settles and a dominant technology emerges, surviving firms expand to their long-term optimal capacity, which results in a reduction in the number of competitors notwithstanding the increase in total market output. Copyright 2012 The Author 2011. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.