After an initial buildup in the number of firms, new industries commonly experience a ~shakeout~ in which the number of firms declines sharply. Shakeouts reflect an abrupt change in market structure, and thus explaining them promises to illuminate the forces shaping market structure. Following a long tradition of theorizing about the connections between market structure and technological change, recent theories featuring technological change have been proposed to explain shakeouts. This project focuses on the development and test of a new theory of shakeouts featuring technological change that has quite different implications regarding firm survival than the competing theories. A preliminary version of the new model is developed and its distinctive implications concerning firm survival are derived. These are contrasted with the firm survival implications of the competing theories. In order to test the alterative theories, data are collected on the entry and exit dates of all the producers of five products that were subject to considerable innovation and experienced severe shakeouts: autos, tires, televisions, typewriters, and penicillin. In addition to studying products that experienced severe shakeouts, two technologically progressive products that have not yet experienced shakeouts are analyzed: lasers and petrochemical styrene. Hypotheses are advanced for why these products have not experienced shakeouts and a plan is laid out to test these hypotheses using detailed data on entry and firm survival for lasers and styrene.
