Industry Evolution Stages An industry can be considered to evolve like an organism: it is born, it lives through different phases, and finally it dies. The industry lifecycle theory considers the evolution of a new industry from the producer's viewpoint. It hypothesizes how a number of producers - who evaluate the viability of producing something - evolves through time. In step with this industry evolution process, the industry's market structure also changes. The industry lifecycle theory has its origins in the seminal work by Gort and Klepper (1982). They constituted a theory of the evolution of new product indus- tries, basing their effort on evidence from 46 product histories. The net entry rates of these product industries (the changes in the number of producers) were classified into five industry evolution stages through which most new products were thought to pass. Figure 3 illustrates these five lifecycle stages: 1. The introduction of a new commercial product by its first producer (or producers). 2. A period of rapid growth in the number of producers. 3. A period where the number of new entrants is about equal with the number of exiting producers. 4. A period of negative net entry, where more firms exit than enter the industry. This phase is also called the industry "shakeout" stage. 5. A second period where the number of entrants approximately equals those who exit. This is considered as the maturity phase of the industry. Gort and Klepper (1982) assumed the entry rate to be determined by the potential returns to a firm, more specifically by the number of innovations from external sources, the accumulated stock of experience of incumbent producers, and the profit of incumbent producers. Agarwal (1998) has later proposed a quadratic formula for modeling the evolution of the number of firms. Fig. 3 Industry lifecycle stages (Dinlersoz 2005) L. Frank Some studies have combined the five stages proposed in the original model by Gort and Klepper (1982). Agarwal and Audretsch (1999) reduce the five industry li