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The effect of population level learning on market entry: The American automobile industry

August 7th, 2009

Olav Sorenson

Is starting a new business more difficult in an emerging industry or in a mature industry? The density dependent model of organizational ecology maintains that the industry’s age is irrelevant; the number of firms currently occupying the market niche determines the industry’s competitive structure. Nevertheless, population-level learning predicts historical asymmetry in entry barriers. Over time, the average fitness of the surviving population members increases, making market entry more difficult. At the same time, surviving organizations become increasingly spread out across the resource space, providing niches that new firms can exploit. Thus, industry-level evolution systematically alters the environment that both existing organizations and new firms face. I offer a new specification for the founding rate model that synthesizes ecological and evolutionary perspectives. Tests of this model in the American automobile industry support its merit.

Social Science Research, 29 (2000): 307-326

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