Disagreements, spinoffs, and the evolution of Detroit as the capital of the U.S. automobile industry

Disagreements, spinoffs, and the evolution of Detroit as the capital of the U.S. automobile industry

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Article ID: iaor20082583
Country: United States
Volume: 53
Issue: 4
Start Page Number: 616
End Page Number: 631
Publication Date: Apr 2007
Journal: Management Science
Authors:
Keywords: automobile industry
Abstract:

The agglomeration of the automobile industry around Detroit, Michigan is explained using a theory in which disagreements lead employees of incumbent firms to found spinoffs in the same industry. Predictions of the theory concerning entry and firm survival are tested using data on the origin, location, and years of production of every entrant into the industry from 1895 to 1966. The geographic concentration of the industry is attributed to four early successful entrants and the many successful spinoffs they spawned in the Detroit area and not to conventional agglomeration economies benefiting co-located firms, as featured in modern theories of agglomeration. Implications of the findings regarding firm strategy are discussed.

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