Entry diversion and submarket industry evolution: Dominance of incumbents, disruption, or isolation?

In this paper, we offer entry diversion as a new mechanism to explain dynamics that cannot be explained by the existing industry life cycle (ILC) theories where no shakeout occurs or where one group of incumbents does not become dominant after a shakeout (e.g., disruption by an entrant). Entry diversion happens when entrants observe that expected future profits from a target submarket are decreased by the presence of cost-efficient incumbents down to a level that the entrant chooses to 'open/enter into' another submarket. Contingent on where entrants are diverted submarkets might over time 1) reinforce incumbents' dominance and faster shakeouts, 2) grow to be disruptive leading to change in industrial leadership and latent shakeouts, or 3) result in isolation and no shakeout. We formulate hypotheses based on the degree of technology and market overlap between submarkets. We test and find evidence to our entry diversion framework using a unique submarket and firm level panel data in global semiconductor manufacturing industry between 1995-2012.