The Evolution of Organizational Niches: U.S. Automobile Manufacturers, 1885-1981

Article excerpt

Many analysts' accounts of the U.S. automobile industry's development, including conjectured reasons for particular firms succeeding and failing, can be readily interpreted from the perspective of the organizational niche. For instance, General Motors' historical success against Ford is hailed by many as the consequence of its early wide-ranging multiproduct market position--a broad niche, in ecological terms. In more recent years, the Japanese manufacturers showed that they could build a sizeable presence after entering the market with small low-cost cars, a part of the market in which major American producers were not very competitive. According to a niche interpretation, one would say that the Japanese firms benefited from initial niche positions with little overlap from existing firms, allowing them to gain strength before attempting more direct competition.

In the background of such niche-based processes, the competitive dynamics of the automobile industry have been driven by both cost and innovation, each of which is tied to scale. The scale of automobile production has increased steadily over the last century, and the race to remain competitively large often constitutes a main reason why automobile firms behave as they do. For instance, insider accounts of the recent round of mergers among large automakers, such as Chrysler and Daimler, point to the increasing scale of the global industry as the critical motivation (Vlasic and Stertz, 2000). As a result of this scale orientation, the automobile industry is characterized generally by a long-term evolutionary pattern of increasing concentration.

Industry consolidation and a trend toward market oligopoly have also marked the evolutionary paths of numerous other industries. Examples from various sectors of the U.S. economy include the wine and beer industries, the airline industry, the petroleum production industry, the motion-picture distribution industry, the microcomputer industry, and the steel industry, to name a few. Concentration propels the formation of a strong and visible market structure whose effects inevitably reverberate through all levels of the social system, influencing the behavior of both economic and non-economic actors. For instance, industrial organization economists have shown that a broad spectrum of a firm's activities and processes are directly affected by the rising industrial concentration: incentives to innovate, mechanisms for price setting, the expectation for investment returns and stability, budgeting for advertising expenses, and the distribution of wages all seem to hinge on the rising market power of a few dominant p roducers and the relationships evolving among them. Yet few economists have focused on analyzing the social dimension of market structure. By Scherer's (1970: 210) account, "the economist is forced, without denying their importance, to view variations in industry conduct and performance due to differences in social structure as an unexplained residual or 'noise'." At one level, our goal here is to demonstrate that this "unexplained" component of the contextual constraints and opportunities faced by organizations operating in concentrating industries contains important and systematic processes of organizational evolution that analysts can ill afford to ignore.

In many industries in which scale provides an advantage, the gradual rise to dominance of a few large competitors is accompanied by a horizontal expansion of their market positions or niches. This is the case with the Daimler-Chrysler merger in the auto industry, the WarnerBros.-Lorimar merger in the motion-picture distribution industry, the LTV-Republic merger in the steel industry, and the American-TWA merger in the airline industry. Accordingly, it seems important that analyses of organizational evolution in concentrating industries deal with questions of niche and scale simultaneously and how they interrelate. …