The Structure and Evolution of Industries

Abstract Differences in products and in processes of production—and, as a consequence, costs and prices—are central features of the competitive process by which heterogeneous firms get selected, with some firms growing, some declining, some going out of business, and some new ones always entering on the belief that they can be successful in this competition. Such processes of competition and selection are continuously fuelled by the activities of innovation, adaptation, and imitation by incumbent firms and by entrants. The competitive process involves selection across firms. But underlying that rests learning on techniques, organizational practices, and product attributes within the firms themselves. Ultimately, learning and competitive selection are the two central drivers of changing industry structures and industrial demographics. We begin with the evidence concerning some general features of (a) firms’ characteristics and industrial structures and dynamics, broadly understood to cover variables such as size, productivity, innovativeness, age, and their intra-industry distributions; and (b) performances—including individual profitabilities, growth profiles, market turbulence, and survival probabilities, together, again, with their aggregate distributions. Next, we present different families of models apt to account for the foregoing ‘stylized facts’ as emergent properties of industrial evolution.