Learning, Diffusion and Industry Life Cycle

An industry typically experiences initial mass entry and later shakeout of producers over its life cycle. It can be explained as a competitive equilibrium outcome driven by dynamic interactions between technology progress and demand diffusion. After a new product is introduced, technology improves with cumulative production and S-shaped diffusion is generated as the product penetrates a positively skewed income distribution. Eventually fewer new adopters are available and the net number of producers starts to decline. It is shown that faster technological learning, higher mean income or larger market size contributes to faster demand diffusion and earlier industry shakeout. Comparative studies on the US and UK television industries and evidence from ten other US industries support the theoretical findings.