Innovation and Industry Evolution

It once took two decades to replace one-third of the Fortune 500; now a subset of new firms are challenging and displacing this elite group, while armies of startups come and go within just a few years. Most new jobs are, in fact, coming from small firms, reversing the trend of a century. This text examines the US economy in motion, providing a detailed and systematic investigation of the dynamic process by which industries and firms enter into markets, either grow and survive, or disappear. It shapes a clear understanding of the role that small, entrepreneurial firms play in this evolutionary process and in the asymmetric size distribution of firms in the typical industry. Audretsch introduces the large longitudinal database maintained by the US Small Business Administration that is used to identify the startup of new firms and track their performance over time. He then provides different snapshots of the process of industries in motion: why new-firm startup activity varies so greatly across industries; what happens to these firms after they enter the market; the extent to which entrepreneurial firms account for an industry's economic activity and why that measure varies across industries; how small firms compensate for size-related disadvantages; and who exits and why. Audretsch concludes that the structure of industries is characterized by a high degree of fluidity and turbulence, even as the patterns of evolution vary considerably from industry to industry. The dynamic process by which firms and industries evolve over time is shaped by three fundamental factors: technology; scale economies; and demand. Most important, the evidence suggests that it is the differences in the knowledge conditions and technology underlying each specific industry - key elements in innovation that are responsible for the pattern particular to that industry.

Table of Contents:
Part 1 Introduction. Part 2 Measurement: The Longitudinal Data Base: Introduction; The Longitudinal Data Base; File Editing; Reliability Comparisons; A Note on Measuring Innovative Activity; Conclusions. Part 3 New Firms: Introduction; Why Firms Exist; The Traditional View of Entry; Asymmetric Information, Transaction Costs, and the Principal Agent Relationship; New-Firm Startups Over Time and Across Industries; The Model; Results; Conclusions. Part 4 Survival and Growth: Introduction; Firm Selection; Post-Entry Performance of New Firms; Firm Growth and Survival; Semiparametric Hazard Duration Model; Conclusions. Part 5 Entrepreneurship: Introduction; Measuring Entrepreneurship; Innovation, Scale Economics, and Entrepreneurship; Empirical Results; Conclusions. Part 6 Compensating Strategies: Introduction; Minimum Efficient Scale and Suboptimal Plant Share; Suboptimal Plants and Compensating Factor Differentials; Empirical Results for the United States; Empirical Results for Japan; Conclusions. Part 7 Who Exits and Why: Introduction; Displacement and the Revolving Door; Measurement; The Age Cohort of Exiting Firms; Conclusions. Part 8 Conclusions: Major Findings; Broader Implications.