The Effect of Population Level Learning on Market Entry: The American Automobile Industry*

Olav Sorenson Is it more difficult to start a new business in an emerging industry or in a mature one? The density dependent model of organizational ecology argues that the age of the industry itself is irrelevant. The number of firms currently occupying the market niche determines the competitive structure of the industry. Nevertheless, population-level learning predicts historical asymmetry in barriers to entry. Over time, the average fitness of the surviving members of the population increases, which tends to make the market more difficult to enter. At the same time, surviving organizations become increasingly spread out across the resource space, providing niches that new firms can profitably exploit. Thus, industry-level evolution systematically alters the environment that both existing organizations and new firms face. I offer a new specification for the founding rate model based on the synthesis of ecological and evolutionary perspectives. Tests of this model in the American automobile industry support the merit of this specification.