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After a buildup in the number of firms, new industries commonly experience a "shakeout" in which the number of firms declines sharply. Three theoretical perspectives on how technological change contributes to industry shakeouts are analyzed. The theories are used to synthesize predictions concerning technological change and industry evolution. The predictions inform an analysis of four U.S. industries that experienced sharp shakeouts: automobiles, tires, televisions, and penicillin. Using data on firm participation and innovation from the commercial inception of the four products through their formative eras, we uncover regularities in how the products evolved. The regularities suggest that shakeouts are not triggered by particular technological innovations nor by dominant designs, but by an evolutionary process in which technological innovation contributes to a mounting dominance by some early-entering firms.

We analyze the evolution of four new products that experienced an initial rise and then extreme shakeout in their number of manufacturers: automobiles, tires, televisions, and penicillin. Data on entry, exit, and innovation are collected for each product to test theories of industry shakeouts. Hazard analyses indicate that earlier entrants had persistently lower hazards during the shakeouts, which was related to their greater rates of innovation. Our findings suggest shakeouts are not triggered by particular technological or other events but are part of a competitive process in which the most able early entrants achieve dominant market positions through innovation. (JEL L1, L13, O31)