When Does Economic Experimentation Matter? Finding the Pivot in the Early History of the Automobile Industry

Abstract

We explore the effectiveness of economic experimentation as a learning mechanism through a historical exploration of the early automobile industry. Our quantitative analysis suggests that economic experimentation was associated with success. We then leverage historical methods to understand if this association is reasonably interpreted as a causal link. We identify lessons that could only plausible have been learned through economic experimentation and document that those firms that were able to learn from experiments and pivot were most likely to succeed. The analysis allows identification of conditions under which economic experimentation and pivoting are likely to be necessary and when Lean Startup strategies are likely to be sufficient. Thus, we build the intellectual foundation and indeed, the history, of the Lean Startup and of the pivot.

Keywords: Experimentation, Economic Experimentation, Entrepreneurship, Lean Startup, Pivot, Automobile

JEL Classification: 031, 032, 033, N61, N62, L62