Abstract The purpose of this paper is to link the propensity for innovative activity to spatially cluster to the stage of the industry life cycle. The theory of knowledge spillovers, based on the knowledge production function for innovative activity, suggests that geographic proximity matters the most where tacit knowledge plays an important role in the generation of innovative activity. According to the emerging literature of the industry life cycle, tacit knowledge plays the most important role during the early stages of the industry life cycle. Based on a data base that identifies innovative activity for individual states and specific industries for the United States, the empirical evidence suggests that the propensity for innovative activity is shaped by the stage of the industry life cycle. While the generation of new economic knowledge tends to result in a greater propensity for innovative activity to cluster during the early stages of the industry life cycle, innovative activity tends to be more highly dispersed during the mature and declining stages of the life cycle, particularly after controlling for the extent to which the location of production is geographically concentrated. This may suggest that the positive agglomeration effects during the early stages of the industry life cycle become replaced by congestion effects during the latter stages of the industry life cycle. Show
Journal Information The Review of Industrial Organization examines all aspects of the field and presents papers that advance significant theories of industrial organization and policy. A major focus of the journal is competition and monopoly in their many forms and their affects on efficiency, innovation, and social conditions. The Review has also increased its focus on public policies such as antitrust, regulation, deregulation, public enterprise, and privatization. Publisher Information Springer is one of the leading international scientific publishing companies, publishing over 1,200 journals and more than 3,000 new books annually, covering a wide range of subjects including biomedicine and the life sciences, clinical medicine, physics, engineering, mathematics, computer sciences, and economics. Rights & Usage This item is part of a JSTOR Collection. Industry Life Cycle refers to the five stages an industry goes through: Introduction, Growth, Shakeout, Maturity, Decline, Snack Time.  Industry Life Cycle 1. Introduction: In this phase the strategic objective is to acheive market acceptance and seed future growth. In this stage product innovation is at a maximum. The common strategy to acheive objectives in this stage is to initiate and leverage network effects. Network effects refers to the positive effect that a user of a product or service has on the value of that product for other users. Network Effects: Apple 2. Growth: In this stage of the life cycle, the growth rate of the market accelerates. An industry standard is often set during this stage. A standard is an agreed upon solution about a common set of engineering features and design choices. This can emerge bottom-up through competition or imposed top-down by government or other standard setting agencies. Once a standard has been established, competition moves from product innovation to process innovation. Process innovation refers to creating new ways to produce existing products or deliver existing services more efficiently. 3. Shakeout: During this stage of the cycle, growth rate delines and firms begin to compete directly with one another for market share, rather than capturing a share of an increasing pie. Weaker firms are forced out of the industry. Profit erodes and only the strongest and most efficient firms survive as increasing rivalry in the industry as firms begin to cut prices and offer more services to gain more market share. The importance of process innovation increases while the importance of product innovation declines. 4. Maturity: At this stage only the few strongest firms remain and the industry morphs into an oligopoly with only a few large firms. Demand now consists of replacement or repeat purchases. The market has reached its maximum size and industry growth is likely zero or negative. The importance of process innovation is now at a maximum. 5. Decline: Market growth becomes negative as a result of changes to the external environment. Process and product innovations cease. Remaining excess industry capacity results in strong pressure on prices and can further increase competitive intensity, especially if the industry has high exit barriers. There are four strategic options in this stage: Exit, Harvest, Maintain, Consolidate.
Life Cycle Stage Summary Crossing The Chasm: A conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group. These groups are: Technology Enthusiasts, Early Adopters, Early Majority, Late Majority, Laggards. Crossing The Chasm Social vs. Strategic Entrepreneurship Which of the following is a feature of the growth stage of the industry lifecycle?Growth Stage
As demand increases, product price goes down, which further increases customer demand. At the growth stage, revenue continues to rise and companies start generating positive cash flows and profits as product revenue and costs surpass break-even.
Which of the following lists the stages of the industry life cycle?The four phases of an industry life cycle are the introduction, growth, maturity, and decline stages.
Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?The shakeout phase is when companies in the market gain more strength over their competitors. Often, the weaker competitors may go down in the market or close altogether because of the inability to grow or negative cash flow.
What stage of the industry life cycle does the late majority usually come in?Maturity stage is finalizing by the presence of late majority and witnessing some of the laggards.
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Which of the following is a feature of the shakeout phase of the industry life cycle?
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