14 computed in each year. Figure 2 plots the five-year moving average of each index to smooth out year-to-year variations. Both curves show a similar pattern. Product innovation is greatest from about 1899 to 1905. After 1905, it peaks in 1912-1915, then again at a higher level in 1922-1925, and is higher again in the early 1930s based on the transilience-weighted index. Product innovations ranked 4 or higher by Abernathy et al. are listed in Table 2. 9 The early innovations through about 1905, including the front-mounted four-cylinder engine, shaft-driven transmission, and pressed steel frame, reflect the evolution of the automobile from its carriage and bicycle origins to the design of cars pioneered in France. Such autos were large and expensive and provided a great opportunity for a car with the benefits of the French design at the low price of the popular Olds runabout (Langlois and Robertson [1991, p. 366]). Ford’s Model T seized that opportunity in 1908. The Model T employed a simple four-cylinder engine with integrally cast cylinder block and crankcase, detachable cylinder heads, three-point suspension, and steel alloys and heat treatments to achieve strength in lightness. Its planetary transmission was simple to operate and rugged for demanding country roads. The magneto integrated into the flywheel provided efficient ignition and lighting. Most importantly, it was priced right at $850, with subsequent process and product innovations reducing its price to $360 by 1916 (Hounshell [1984, p. 224]). Subsequent innovations in the 1910s and 1920s improved every aspect of the French design, making the novel features of the Model T obsolete well before it was retired in 1927. Innovations after the mid-1920s largely refined the characteristics of the auto rather than broke new ground (cf. Rae [1959, p. 154]). Many firms contributed major product innovations. The two leading firms, Ford and GM, accounted for only 33.7% of the 52 product innovations in Table 2, considerably less than their share of the market after the start of the shakeout. Relatively minor producers contributed a disproportionate share of innovation not only 9 An exception is the Synchromesh transmission introduced by Cadillac in 1924. Although it was only rated a three in terms of its impact on production, it was included because of its significance.
during the early years of the industry, but also after the start of the shakeout. 15 Diffusion of major product innovations generally occurred rapidly. Bigger engines, improved sliding gear transmissions, the closed body, the electric self starter, and four- wheel brakes were all quickly adopted by manufacturers. For example, by 1926 over 70% of cars produced had closed bodies, following Hudson’s 1922 inexpensive closed- body design; within two years of the development of the electric starter, over 90% of manufacturers offered it as standard equipment; and over 90% of manufacturers had adopted four-wheel hydraulic brakes within five years oftheir introduction (Epstein , pp. 110-112). This was partly a reflection of the cross-licensing agreement in force in the industry since 1915. It provided free licensing of all but radical patents to members of the National Automobile Chamber of Commerce, which included all the bigger firms except Ford. 10 Other major innovations such as the electric self starter and the closed body diffused rapidly through suppliers. The historical record thus suggests that there were many significant product innovations through the mid 1920s from a broad range of firms. Their rapid diffusion suggests that it was important to keep up with them to remain competitive. Can a credible case be made from the historical record for the emergence of a dominant design or a major product innovation a la the innovative gamble theory that might have caused the shakeout? Focusing first on the innovative gamble hypothesis, there does not seem to be a product innovation with sufficient competitive implications to have caused the shakeout. The highest rated product innovations in terms oftheir transilience scores through 1940 are Cadillac’s V-8 engine in 1914, the inexpensive closed body pioneered by Hudson in 1922, and the automatic transmission by Oldsmobile in 1940. Certainly another major innovation was the electric self starter, developed by Dayton Engineering Laboratories for the 1912 Cadillac. Only the self 10 Despite applications for exemptions for major patents such as Hudson’s 1916 balanced crankshaft, in the first ten years of the agreement no patent was granted such an exemption (FTC [1939, p. 58]), and innovations such as Cadillac’s synchromesh transmission were widely licensed (Renner [1973, p. 411]). Prior to 1915, the most significant patent was the Selden patent, which claimed to cover the basic design of the modern automobile. Although royalties were collected on this patent for many years until it was successfully challenged by Ford on behalf of many manufacturers, the royalty rate was quite modest and it was licensed to all comers.