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Technological Extinctions of Industrial Firms: An Inquiry into their ...

Technological Extinctions of Industrial Firms: An Inquiry into their ...

24 Table 5 indicates, by

24 Table 5 indicates, by 1933 it had increased its leading market share to 30.1%. Firestone was the other member of the big four to locate in Akron in 1900. When its entry into the pneumatic tire market was blocked by patents, Firestone followed Goodyear’s lead by developing a new tire. In the 1920s Firestone acquired textile mills to produce its own cotton cord and took out a long-term lease on a Liberian rubber plantation. Although Firestone’s market share in Table 5 was only 8.2% in 1921, it had been and would again be higher, rising to 19% in 1929. U.S. Rubber, the last of the big four, was a trust formed from nine companies in 1892 to control the rubber footwear business. In 1905 it acquired the Rubber Goods Manufacturing (RGM) Company, which had four subsidiaries producing tires. RGM controlled important patents that enabled U.S. Rubber to become the number one automobile tire producer in 1912, but it was slow to recognize the superiority of new tire designs and failed to rationalize production among its various tire plants. As a consequence, Table 5 indicates that by 1921 its market share had declined to 8.5%. In the 1930s its market share rose dramatically after the Du Ponts, major shareholders in GM, gained control of the company, and it acquired a large portion of GM’s business and secured with Goodrich the private label business of Montgomery Ward and three other major chains. Together, the big four increased their joint market share to 72.1% by 1933, after which their share of the market remained steady as automobile manufacturers spread their OE business among the industry leaders to preserve competition. In terms of the theories, the sharp drop in entry after the start of the shakeout is consistent with all the theories. The tremendous surge in entry around the start of the shakeout, though, is predicted only by the innovative gamble theory. The steady decline in the number of producers for over fifty years after the start of the shakeout is consistent only with the increasing returns theory. Although the failure of the leading firms to increase their market share after the 1930s is not consistent with the increasing returns theory, this seems largely attributable to the auto companies spreading their business among the leading firms to maintain competition. Last, the total dominance of the industry after the shakeout by four of the earliest entrants is predicted only by the increasing returns theory.

4.2. Product Innovation 25 To analyze product innovation in tires, we rely on a list of major tire product innovations for 1895-1965 compiled by Warner [1966] in his doctoral dissertation on tire product innovation. The list includes innovations developed by the tire manufacturers and non-tire, principally chemical, firms. Focusing on the innovations credited to tire manufacturers (shared innovations are split), the number of innovations per decade was 6 in 1901-1910, 1.5 in 1911-1920, 5 in 1921-1930, and 3.5 in 1931-1940. These counts suggest product innovation was concentrated early and then rose again in the first decade of the shakeout, declining somewhat in the 1930s as the shakeout continued. A closer look at the character of the innovations reinforces this impression. Table 6 reports the innovations listed by Warner for the period 1895-1940, which covers the brunt of the shakeout. 17 Innovations through 1930 predominantly involved the design of the tire and new chemicals. The design innovations, most prominent up to 1910 and in the 1920s, defined the basic character of the tire and along with new fabrics and additives yielded a large improvement in tire performance. The innovations in the 1930s predominantly involved the development of substitute materials for cotton cord and natural rubber and had less effect on performance. The lifetime mileage of tires reflects these patterns. Using figures assembled from various sources by Warner [1966, pp. 306-307], the annual growth in average tire mileage per decade was 5.1% in 1910-1920, 11% in 1920-1930, 3.8% in 1930-1940, 2% in 1940-1950, and 1.7% in 1950-1960. 18 This reinforces the impression from the simple counts of product innovation that the rate of product innovation increased in the 1910s to reach a peak in the 1920s and declined steadily thereafter. The cord and balloon tire designs were the most outstanding changes around the time of the shakeout, and given their competitive importance, it is worthwhile to review their interdependent history. The gradual switch from fabric to cord and then balloon 17 The innovations listed agree closely with two other lists of major tire innovations presented in Dick [1981, p. 25] and Tire Business [1988, pp. 26-29]. 18 The same pattern holds after adjusting for the effect on mileage of changes in the average driving speed and tire pressure (cf. Warner [1966, p. 319]).

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