Firm and Product Life Cycles and Firm Survival

Abstract

On average, roughly 5-10 percent of the firms in a given market leave that market over the span of a single year. At least so data for a broad range of industries in several economies tell us. What is it, other than random shocks, that determines the probability of survival for a firm in a given market? We start by decomposing the forces that affect survival into industry and firm attributes. Industry attributes, we hypothesize, encompass variables that exert their influence both over time and across markets. The variables that operate over time are defined by the life cycle of the industry. Life cycles of the industry affect mainly the characteristics of demand and the rate and form of technical change. Variations across firms, we hypothesize, arise mainly from learning-by-doing, Darwinian survival of the fittest, and the obsolescence of initial endowments. These variables are linked to the life cycle of the firm. How these industry and firm life cycles define patterns of survival is the story