Churn, Baby, Churn: Strategic Dynamics Among Dominant and Fringe Firms in a Segmented Industry

44 Pages Posted: 1 Nov 2006

See all articles by John M. de Figueiredo

John M. de Figueiredo

Duke University School of Law; Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Brian S. Silverman

University of Toronto - Rotman School of Management

Date Written: October 20, 2006

Abstract

This paper integrates and extends the literatures on industry evolution and dominant firms to develop a dynamic theory of dominant and fringe competitive interaction in a segmented industry. It argues that a dominant firm, seeing contraction of growth in its current segment, enters new segments to exploit its technological strengths, but segments sufficiently distant to avoid cannibalization. The dominant firm acts as a low-cost Stackelberg leader, driving down prices and triggering a sales takeoff in the new segment. We identify a "churn" effect associated with dominant firm entry: fringe firms that precede the dominant firm into the segment tend to exit the segment, while new fringe firms enter, causing a net increase in the number of firms in the segment. As the segment matures and sales decline in the segment, the process repeats itself. We examine the predictions of the theory with a study of price, quantity, entry and exit across 24 product classes in the desktop laser printer industry from 1984 through 1996. Using descriptive statistics, hazard rate models, and panel data methods, we find empirical support for most of the theoretical predictions.

Keywords: competitive dynamics, industry evolution, segmented industries, dominant firms

JEL Classification: L11, L13, L63

Suggested Citation

de Figueiredo, John M. and Silverman, Brian S., Churn, Baby, Churn: Strategic Dynamics Among Dominant and Fringe Firms in a Segmented Industry (October 20, 2006). Available at SSRN: https://ssrn.com/abstract=941468 or http://dx.doi.org/10.2139/ssrn.941468

John M. De Figueiredo

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative

215 Morris St., Suite 300
Durham, NC 27701
United States

Brian S. Silverman (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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