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What are the Industry Life Cycles

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A typical industry life cycle might be described by four stages: a start-up stage, characterized by extremely rapid growth; a consolidation stage, characterized by growth that is less rapid but still faster than that of the general economy; a maturity state, characterized by growth no faster than the general economy; and a stage of relative decline in which, the industry grows less rapidly than the rest of the economy, or actually shrinks.

  1. Start-Up Stage: The early stages of an industry are often characterized by a new technology or product such as VCRs or personal computers in the 1980s, or bioengineering in the 1990s. At this stage, it is difficult to predict which firms will emerge as industry leaders. Some firms will turn out to be wildly successful, and others will fail altogether. Therefore, there is considerable risk in selecting one particular firm within the industry.
  2. Consolidation Stage: After a product becomes established, industry leaders begin to emerge. The survivors from the start-up stage are more stable, and market share is easier to predict. Therefore, the performance of the surviving firms will more closely track the performance of the overall industry. The industry still grows faster than the rest of the economy as the product penetrates the marketplace and becomes more commonly used.
  3. Maturity Stage: At this point, the product has reached its full potential for use by consumers. Further growth might merely track growth in the general economy. The product has become far more standardized, and producers are forced to compete to a greater extent on the basis of price. This leads to narrower profit margins and further pressure on profits.
  4. Relative Decline: In this stage, the industry might grow at less than the rate of the overall economy, or it might even shrink. This could be due to obsolescence of the product, competition from new products, or competition from new low-cost suppliers.

There’s also an article about industrial structure.

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