UNDERSTANDING EVOLUTIONARY PROCESSES IN NON-MANUFACTURING INDUSTRIES - EMPIRICAL INSIGHTS FROM THE SHAKEOUT IN PHARMACEUTICAL WHOLESALING

Although the empirical pattern of industry shakeout has been documente d for many manufacturing industries, we know little about the processe s by which market structure evolves in non-manufacturing service indus tries. This paper establishes detailed empirical observations about th e consolidation of a single non-manufacturing industry, the wholesale distribution of pharmaceuticals. These observations are used to explor e differences between manufacturing and wholesaling in both the patter ns and explanations for consolidation and analyze the explanatory powe r of theories that link consolidation to technological change. The ana lysis demonstrates that theories developed to explain consolidation in new manufacturing industries have varying degrees of applicability to the consolidation of drug wholesaling. The observed patterns of exit, innovation, and growth suggest important modifications to evolutionar y theories of market structure.