ABSTRACT
How do media firms and the market structure of media industries change over time? This is the central question in this chapter. When media industries are new, in the introduction stage of their life cycle, a lot of entry takes place, firms offer many different versions of the industry’s product, the rate of product innovation is high, and market shares change rapidly. Over time, competition increases because of the large possible profits in the industry. The industry’s output expands and the price decreases. When a dominant product design is accepted and production becomes standardized, the industry’s firms generally have to become more price and cost conscious. As a consequence, the innovative activities of many firms gradually shift from product to process innovations. The emergence of economies of scale in production, sales, and R&D result in a sharp increase in market concentration. Firms that cannot keep up with the changes go bankrupt. Over their evolution many media industries may, therefore, experience a shake-out period during which the number of firms declines strongly. The industry then reaches maturity, a stage where new entry is difficult resulting in a relatively stable competitive environment. The remaining firms make high profits and reach most interested customers. Hence, the character of industries evolves over time, hand-in-hand with the changes in market structure. The process by which this co-evolution occurs involves a selection between different firms, which have different ideas, that are embodied in the different products and services that they offer (see Geroski, 1991, p. 264).
