Submarkets, Vertical Integration and Survival in the US Laser Industry

The transient nature of vertical integration in the laser industry is investigated. Descriptive, case study, and empirical evidence is presented to suggest that firms in the laser industry became vertically integrated to pioneer new applications for lasers, that there is self-selection based on firm capabilities into short-lived vertical integration, and that receding to being specialists is not associated with a higher hazard of exit from the upstream or downstream market. In addition, the markets are continuing to experience shakeouts concurrently. Evidence is presented to suggest that a novel technological development brought about a new era in the industry in which the market for one category of upstream products expanded and supplanted other upstream products from various applications, leading to concurrent shakeouts. A theoretical model of industry evolution is developed, where submarkets are prominent and firms transiently integrate, to explain the observed patterns.

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Enrico Pennings

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