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

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

(Warner [1966, pp.

(Warner [1966, pp. 137-141]). 28 What does this evidence imply about the causes of the industry’s shakeout? The major tire design innovations, in light of their importance, are the likely place to look for a product innovation that might have played the role of the triggering innovation in the innovative gamble theory. Judging from Table 7, none of the design innovations prior to the balloon was quickly adopted, suggesting that none of them could have triggered the shakeout in tires. The balloon seems a viable candidate for the triggering innovation, although by the time it began to be widely adopted the shakeout was at least a few years old. Jovanovic and MacDonald consider but do not nominate the balloon as the innovation in their theory that triggered the shakeout in tires. Perhaps this is because of the timing of the balloon or because the balloon diffused quickly once it became popular, suggesting that it was not terribly challenging to adopt. It may also be because there is no evidence suggesting the balloon increased the minimum efficient size firm, which was quite small relative to the size of the market (Reynolds [1938]). In terms of the dominant design theory, in light of the slow diffusion of straight-side and cord tires prior to the balloon tire, it does not seem reasonable to talk of a dominant design in tires until the widespread adoption of the balloon starting around 1925. As noted above, this comes at least a few years after the start of the shakeout. Nevertheless, this does not preclude the possibility of a dominant design corresponding to the balloon tire playing an important role in the shakeout. In terms of the increasing returns theory, the rate of product innovation appears to have peaked soon after the start of the shakeout, consistent with the theory. On the other hand, product innovation was almost entirely concentrated in the leading firms, which the theory predicts for process but not product innovation. Indeed, the concentration of product innovation in the top firms is striking--although over 600 firms produced tires at some point according to the list compiled from Thomas’ Register, the leading five firms accounted for nearly all the major product innovations. This is almost as extreme as the concentration of process innovations in the leading auto producers. It may reflect the fundamental character of a number of the product innovations, particularly the design innovations. Although some of these innovations opened new

29 submarkets as portrayed in the theory, they also greatly increased tire mileage and the smoothness of the ride, clearly attributes valued by all users. That these innovations were not pursued by smaller firms is perhaps not surprising. For a later era, Warner [1966, p. 246]) notes that at most the top seven firms could have afforded a research program required to stay at the technological frontier. 4.3. Process Innovation In contrast to product innovation, no series has been compiled on tire process innovations. Several studies and articles in the trade press, however, review major process developments and the sources of productivity growth in tire manufacturing. Labor productivity data are also available from 1914, when the tire industry was first distinguished as a separate industry in the Census. Before 1914, labor productivity data are available for the rubber industry and fragmentary productivity data are available for Goodrich, Goodyear, and Firestone. Together, this information is used to analyze the nature of process innovation during the formative decades of the industry. We begin with the data on labor productivity, presented in Table 8. Indexes are presented for tires per man hour and value added per man hour for various years from 1914 to 1937. Also reported is an index of tires per direct man hour for six leading tire plants in 1914 and 1922-1931. These six plants accounted for 45% of total tire output in 1922 and 60% in 1931 (Stern [1933]). All three series reflect a similar pattern. Tires per man hour in all plants grew by an average annual rate of 12.7% in 1914-1924 versus 3.7% in 1924-1937. Tires per direct man hour in the six plants grew by 11.9% in 1914-1924 versus 7.8% in 1924-1931. Value added per man hour for all plants similarly registered its biggest growth early, growing by an average annual rate of 8.9% from 1914-1923 and then slowing to a 1.2% annual growth from 1923-1935. Kendrick’s estimates of labor productivity for the entire rubber industry suggest that the high growth rates beginning in 1914 may have started as early as 1909, with annual rubber output per man-hour rising by 2.5% in 1899-1909, 7.8% in 1909-1919, 8.4% in 1919-1929, and 3.5% in 1929-1937 (French [1985, p. 266]). Fragmentary productivity data for Goodyear, Goodrich, and

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