THE DYNAMICS OF EVOLVING MARKETS - THE EFFECTS OF BUSINESS SALES AND AGE ON DISSOLUTIONS AND DIVESTITURES

Data from seven American medical sector product markets established between the 1950s and the 1980s are used to investigate how business sales and age in evolving industries affect the likelihood that start-up firms and existing firms entering the market (diversifying entrants) will shut down or sell their businesses. The study shows that the influences of business sales and age differ systematically by type of entrant and type of exit. The dissolution rate declined with greater sales and age for start-up firms. While the dissolution rate of diversifying entrants also declined with greater sales, the rate was not affected by business age when the level of sales was controlled. By contrast, start-up firms and diversifying entrants became more likely to sell their businesses over time, while sales levels had no effect on the divestiture rate. When age, sales, and other business and corporate characteristics were controlled, there was little difference in the business dissolution rate of start-up firms and diversifying entrants, but diversifying entrants were more likely than start-up firms to sell their businesses. The paper explores the interrelationship of economic, ecological, and evolutionary explanations for business survival. The results help us understand the processes by which organizational capabilities are retained in a product market as businesses age and grow, suggesting that start-up firms play a moderating role in the almost Darwinian process by which larger businesses are selected for survival.