Industry lifecycle

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Industry lifecycle is a theory linking the intensity of competition in a particular market with the time since the breakthrough innovation that made that market possible.

The lifecycle passes through 5 distinct stages:

• I - dormant stage with low numbers of competitors enjoying high monopoly profits
• II - "takeoff" stage with soaring entry and virtually non-existent exit from the market
• III - high turnover stage with many firms entering the market and leaving it
• IV - "shakeout" stage with mass exit via mergers, bankruptcies, etc.
• V - stabilization stage during which a stable oligopoly emerges

Industry lifecycle is commonly correlated with the cycle of product and process innovation. Other factors that may launch industry lifecycle include:

• government intervention (e.g., deregulation),
• liberalization of external trade,
• lower transportation costs.

[edit] References

• Michael Gort, Steven Klepper. Time paths in the diffusion of product innovations. Economic Journal, vol.92, no.367. (September, 1982) Pp.630-653.