Latent submarket dynamics and industry evolution: lessons from the US laser industry

In its first 35 years, the US laser industry was characterized by steady growth in output and the number of producers, whereas subsequently the number of producers steadily declined despite continued growth in the industry's output. A model of industry evolution that features the creation, destruction, and fusing of independent submarkets is developed to explain these two eras. Data on all laser producers are used to test various implications of the model concerning entry, exit, and innovation. The findings suggest that the emergence of an integrative submarket can fundamentally alter an industry's market structure and the character of innovation, which is applied to explain historical developments in the evolution of various innovative industries.