Skip to main content
SpringerLink
Log in

Diversity of firm’s life cycle adapted from the firm’s technology investment decision

  • Original Paper
  • Published:
Central European Journal of Operations Research Aims and scope Submit manuscript

Abstract

The stylized model presented is an optimal control model of technology investment decision of a single product firm. The firm’s technology investment does not have only a long-run positive effect but also a short-run adverse effect on its sales volume. We examine the case of high adverse investment effects where the firm finally leaves the market but we have observed different life cycles till this happens. Depending on the firm’s initial technology stock and sales volume, we compute different firm’s life cycles, which are driven by a trade-off between two strategies: technology versus sales focus strategy. Indifference curves, where managers are indifferent to apply initially technology or sales focus strategies, separate founding conditions of the firm to various classes distinguishable because of the firm’s life cycle.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Abernathy WJ, Utterback JR (1978) Patterns of industrial innovation. Technol Rev 80(7): 40–47

    Google Scholar 

  • Adda J, Cooper R (2000) The dynamics of car sales: a discrete choice approach. NBER working paper No. 7785

  • Agarwal R, Gort M (2002) Firm and product life cycles and firm survival. Am Econ Rev 92: 184–190. doi:10.1257/000282802320189221

    Article  Google Scholar 

  • Agarwal R, Sarkar M, Echambadi R (2002) The conditioning effect of time on firm survival: an industry life cycle approach. Acad Manag J 45: 971–994

    Article  Google Scholar 

  • Amit R, Schoemaker P (1993) Strategic assets and organizational rent. Strateg Manag J 14: 33–46

    Article  Google Scholar 

  • Audretsch D, Mahmood T (1994) The rate of hazard confronting new firms and plants in US manufacturing. Rev Ind Organ 9: 41–56

    Article  Google Scholar 

  • Caulkins JP, Feichtinger G, Haunschmied JL, Tragler G (2006) Quality cycles and the strategic manipulation of value. Oper Res 54(4): 666–677. doi:10.1287/opre.1060.0294

    Article  Google Scholar 

  • Caves R (1998) Industrial organization and new findings on the turnover and mobility of firms. J Econ Lit 36: 1947–1982

    Google Scholar 

  • Cooper A, Gimeno-Gascon F, Woo C (1994) Initial human and financial capital as predictors of new venture performance. J Bus Ventur 9: 371–395

    Article  Google Scholar 

  • Dixit A, Pindyck R (1994) Investment under uncertainty. Princeton University Press, NJ

    Google Scholar 

  • Doms M, Dunne T, Roberts MJ (1995) The role of technology use in the survival and growth of manufacturing plants. Int J Ind Organ 13: 523–542

    Article  Google Scholar 

  • Dunne T, Roberts M, Samuelson L (1988) Patterns of firm entry and exit in US manufacturing plants. Rand J Econ 19: 495–515

    Article  Google Scholar 

  • Dunne T, Roberts M, Samuelson L (1989) The growth and failure of US manufacturing plants. Q J Econ 104: 671–698

    Article  Google Scholar 

  • Dunne P, Hughes A (1994) Age, size, growth and survival: UK companies in the 1980s. J Ind Econ 42(2): 115–141

    Article  Google Scholar 

  • Evans DS (1987) Tests of alternative theories of firm growth. J Polit Econ 95(4): 657–674

    Article  Google Scholar 

  • Evans DS (1987) The relationship between firm growth, size, and age—estimates for 100 manufacturing industries. J Ind Econ 35(4): 567–581

    Article  Google Scholar 

  • Fichman M, Levinthal D (1991) Honeymoons and the liability of adolescence: a new perspective on duration dependence in social and organizational relationships. Acad Manag Rev 16: 442–468

    Article  Google Scholar 

  • Frank M (1988) An intertemporal model of industrial exit. Q J Econ 103: 333–344

    Article  Google Scholar 

  • Freeman J, Carroll G, Hannan M (1983) The liability of newness: age dependence in organization death rates. Am Sociol Rev 48: 692–710

    Article  Google Scholar 

  • Geroski PA (1995) What do we know about entry? Int J Ind Organ 13: 421–440

    Article  Google Scholar 

  • Geroski PA, Mata J, Portugal P (2003) Founding conditions and the survival of new firms. Banco de Portugal, Economic Research Department, Working papers No. 1–03

  • Grass D, Caulkins JP, Feichtinger G, Tragler G, Behrens G (2008) Optimal control of nonlinear processes. Springer Verlag, Berlin

    Book  Google Scholar 

  • Hall B (1987) The relationship between firm size and firm growth in the US manufacturing sector. J Ind Econ 35(4): 583–606

    Article  Google Scholar 

  • Hall B, Khan B (2003) Adoption of new technology. NBER Working paper No. 9730

  • Hannan M, Freeman J (1984) Structural inertia and organizational change. Am Sociol Rev 49: 149–164

    Article  Google Scholar 

  • Haunschmied JL, Kort PM, Hartl RF, Feichtinger G (2003) A DNS-curve in a two-state capital accumulation model: a numerical analysis. J Econ Dyn Control 27: 701–716. doi:10.1016/S0165-1889(01)00070-7

    Article  Google Scholar 

  • Haunschmied JL, Feichtinger G, Hartl RF, Kort PM (2005) Keeping up with the technology pace: a DNS-curve and a limit cycle in a technology investment decision problem. J Econ Behav Organ 57: 509–529. doi:10.1016/j.jebo.2005.04.003

    Article  Google Scholar 

  • Jovanovic B (1982) Selection and the evolution of industry. Econometrica 50: 649–670

    Article  Google Scholar 

  • Jovanovic B, MacDonald G (1994) The life cycle of a competitive industry. J Polit Econ 102: 322–347

    Article  Google Scholar 

  • Kimberly J (1979) Issues in the creation of organisations: initiation, innovation, and institutionalisation. Acad Manag J 22: 437–457

    Article  Google Scholar 

  • Levinthal D (1991) Random walks and organizational mortality. Adm Sci Q 36: 397–420

    Article  Google Scholar 

  • Mansfield E (1968) Industrial research and technological innovation: an econometric analysis. Longmans, London

    Google Scholar 

  • Mata J, Portugal P (1994) Life duration of new firms. J Ind Econ 42: 227–246

    Article  Google Scholar 

  • Pegels C (1991) Research and development intensity and performance. In: Kocaoglu DF, Niwa K (eds) Technology management: the new international language, Portland OR, 27–31 Oct 1991. Proceedings of PICMET 91, ISBN 0-7803-0161-7, IEEE, NY, pp 166–169

  • Romanelli E (1989) Environments and strategies at start-up: effects on early survival. Adm Sci Q 34: 369–387

    Article  Google Scholar 

  • Schumpeter JA (1942) Capitalism, socialism, and democracy. Harper and Brothers, New York

    Google Scholar 

  • Sharma A, Kesner I (1996) Diversifying entry: some ex ante explanations for post-entry survival and growth. Acad Manag J 39: 635–677

    Article  Google Scholar 

  • Spence M (1977) Entry, capacity, investment, and oligopolistic pricing. Bell J Econ 8: 534–544

    Article  Google Scholar 

  • Spence M (1979) Investment strategy and growth in a new market. Bell J Econ 10: 1–19

    Article  Google Scholar 

  • Spence M (1981) The learning curve and competition. Bell J Econ 12: 49–70

    Article  Google Scholar 

  • Stinchcombe AL (1965) Organizations and social structure. In: March JG (ed) Handbook of organizations. Rand-McNally, Chicago, pp 142–193

    Google Scholar 

  • Utterback JM (1996) Mastering the dynamics of innovation. Harvard Business School Press, Boston

    Google Scholar 

  • Verspagen B (1993) Uneven growth between interdependent economies: an evolutionary view on technology gaps, trade and growth. Aldershot, Avebury (published from of PhD dissertation)

  • Wernerfelt B (1985) The dynamics of prices and market shares over the product life cycle. Manag Sci 31: 928–939

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Institute of Mathematical Methods in Economics, Vienna University of Technology, Argentinierstr. 8, 1040, Vienna, Austria

    Emmanuelle Fortune-Devlaminckx & Josef L. Haunschmied

  2. Observatoire Français des Conjonctures Economiques, OFCE-DRIC-CNRS, 250, rue Albert Einstein, 06560, Valbonne, France

    Emmanuelle Fortune-Devlaminckx

Authors
  1. Emmanuelle Fortune-Devlaminckx
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Josef L. Haunschmied
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Josef L. Haunschmied.

Additional information

This research was financed by the Austrian National Bank under Grant Jubilaeumsfonds No. 11260. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the Austrian National Bank.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Fortune-Devlaminckx, E., Haunschmied, J.L. Diversity of firm’s life cycle adapted from the firm’s technology investment decision. Cent Eur J Oper Res 18, 477–489 (2010). https://doi.org/10.1007/s10100-010-0171-6

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10100-010-0171-6

Keywords

JEL Classification

Search

Navigation