The Pre-Producers

While a start-up firm waits for its sales to materialize, it is a "pre-producer". This waiting period represents a special kind of entry cost. This paper studies how such entry costs influence the several stages of an industry's life cycle. Assuming that the production hazard is rising in the initial stages of pre-production, industry equilibrium entails an eventual "shakeout" of pre-producers as they are squeezed out by the producers who drive industry price down. This seems to fit the experience of the early automobile industry and of the recent dot.com wave