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 be tween the 1950s and the 1980s are used to investigate how business sal es and age in evolving industries affect the likelihood that start-up firms and existing firms entering the market (diversifying entrants) w ill shut down or sell their businesses. The study shows that the influ ences of business sales and age differ systematically by type of entra nt 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, s tart-up firms and diversifying entrants became more likely to sell the ir businesses over time, while sales levels had no effect on the dives titure rate. When age, sales, and other business and corporate charact eristics were controlled, there was little difference in the business dissolution rate of start-up firms and diversifying entrants, but dive rsifying entrants were more likely than start-up firms to sell their b usinesses. The paper explores the interrelationship of economic, ecolo gical, and evolutionary explanations for business survival. The result s help us understand the processes by which organizational capabilitie s are retained in a product market as businesses age and grow, suggest ing that start-up firms play a moderating role in the almost Darwinian process by which larger businesses are selected for survival.