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Economics of innovation

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Question:

Critically discuss the main open issues of the Industry Life Cycle model (Klepper, 1996)

Author: Nasta Charniak



Answer:

The industry life cycle model (ILC) - it is an attempt to examine and reconstruct the structural dynamics of specific industries (structural dynamics). The formal model (Klepper, 1996 AER) «five stages in the evolution of the market with respect to the number of producers in it. These five stages represent a prototype of the life-cycle of the market from its beginning up to, but not including, the period of eventual decay or contraction in absolute market size» (p. 630); «the identification of stages in the history of a continuously changing phenomenon is, essentially, an analytical convenience. [...] The five periods, however, capture the major transitions in the forces that we believe determine the number of producers in a market during most of its life-cycle». Gives an ultimate structure of new product markets


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The industry life cycle model (ILC) - it is an attempt to examine and reconstruct the structural dynamics of specific industries (structural dynamics).
The formal model (Klepper, 1996 AER)
«five stages in the evolution of the market with respect to the number of producers in it. These five stages represent a prototype of the life-cycle of the market from its beginning up to, but not including, the period of eventual decay or contraction in absolute market size» (p. 630); «the identification of stages in the history of a continuously changing phenomenon is, essentially, an analytical convenience. [...] The five periods, however, capture the major transitions in the forces that we believe determine 
the number of producers in a market during most of its life-cycle». Gives an ultimate structure of new product markets
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