The long-term evolution of vertically-related industries

The paper develops the argument that the long-term structural evolution of an industry depends on the evolution of a vertically-related, downstream in dustry. We analyse two pairs of vertically-related industries, the jet and turboprop aircraft and engine industries, since the first introduction of t he jet and turboprop technologies to 1998. The paper shows that the evoluti onary dynamics of the downstream industry, in terms of number of firms and products, entry, exit and concentration, is transmitted to the upstream ind ustry via the structure of the network of vertical exchange relations. We i dentify two network configurations, partitioned and hierarchical, and show that they are responsible for sharply different transmission effects. An ec onometric analysis is carried out to demonstrate this difference in the tur boprop and jet markers. (C) 2001 Elsevier Science B.V. All rights reserved.