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

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

52 industry in 1975,

52 industry in 1975, 1991, 1987, and 1967 respectively. In contrast, three of the four semisynthetic producers in 1965, Bristol, Pfizer, and Wyeth, were still producing penicillin at the end of 1991, with the fourth, Squibb, having exited in 1983. Thus, if penicillin V affected firm survival, the effects were hardly unique, suggesting that it alone could not have caused the shakeout a la the innovative gamble theory. In terms of the dominant design theory, the trend in product innovation is opposite to that predicted by the theory. The rate of introduction of new forms of penicillin was relatively modest before the start of the shakeout and accelerated greatly a half-decade later. Product variety increased over time, particularly with the advent of the semisynthetics. The number of forms of penicillin in Table 15 that were manufactured in each five-year period from 1946-1950 through 1986-1990 increased from 1 in the first period to 3, 4, 10, 11, 13, 14, 15, and 15 in the subsequent periods. Hence, far from coalescing around a dominant design, the product grew less standardized with time. In terms of the increasing returns theory, product innovations opened up new submarkets for penicillin, as portrayed in the theory, yet the rate of product innovation increased after the start of the shakeout, contrary to the predicted pattern. This increase appears to have been driven by the technical breakthrough in synthetic methods pioneered by Sheehan. The theory also predicts that process rather than product innovation will be concentrated in the industry leaders and will be the key determinant of firm survival. However, the leading U.S. product innovators were among the industry leaders and product innovation, particularly in the semisynthetic era, appears to have played an important role in firm survival. Similar to tires and televisions, it appears that increasing returns forces may have played a prominent role in product innovation in penicillin. This role is consistent with the large amount of resources devoted to R&D by antibiotics manufacturers, with 8% to 9% of the employees of antibiotics manufacturers devoted to R&D in 1956 (FTC [1958, p. 10]). 47 47These figures pertain to all antibiotics manufactured, with no breakdown reported by type of antibiotic.

6.3. Process Innovation 53 The nature of penicillin manufacturing processes and much about process innovation can be reconstructed from a range of sources, including FTC [1958], Elder [1970], Calam [1987], and various trade articles. Penicillin firms normally kept their manufacturing processes highly secret, however, which prevented us from assembling a fully comprehensive list of major process innovations as in the other products. Therefore, to analyze quantitatively the extent of process innovation over time, we use data on price and production yield which are reported in Table 17. The price of penicillin fell enormously after World War II. Table 17 shows the price per pound of bulk penicillin, in 1967 dollars, every five years from 1945 through 1980. Between 1945 and 1950, the price plummeted from $5291 to $266, an average decrease of 45% per year. Thereafter, the price continued to fall, but at a less dramatic rate. From 1950 to 1955, the price fell from $266 to $89, or 20% per year. In later years, expensive new forms of penicillin took up a more meaningful share of the market, but even so the average price across all forms of penicillin continued to fall, dropping 19% per year to $11 in 1965, then 3% per year to an eventual low of $8 per pound by 1975. 48 Increased production yields were not the only means of reducing production costs, but they did reduce costs per unit at most steps in the manufacturing process. Table 17 presents data for available years on yields of penicillin per unit of the production broth used to grow the Penicillium mold. Between 1950 and 1958, yields grew from 2 to 7 grams per liter of production broth, an annual increase of 17%. Between 1958 and any of the other dates at which information is available, yields grew at a slower pace; from 1958 to 1986, yields grew from 7 to 65 grams per liter, an annual increase of 8%. Improvements in pencillin manufacturing methods, categorized in Table 18, can be classified into three periods: World War II, the post-war years, and the semisynthetic 48 Prices for strictly comparable forms of penicillin during the years 1948 to 1956 were examined in FTC [1958, p. 168]). The figures for four companies show a roughly 90% (or 25% per year) decrease in prices over this eight-year period, the same pattern as reflected in the figures in Table 17 from Synthetic Organic Chemicals.

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