Theory of Industry Growth
Industry growth is an interactive process. Firms grow and contribute to industry growth. Economy grows and it provides the impetus to industry growth. When firms reach equilibrium through an optimization process, it may or may not be consistent with industry equilibrium. When it is consistent, the number of firms in industry equilibrium reaches its optimal level. This determines the short run framework. Any dynamic change in this framework can occur through new technology and innovations, or external shock through different sources such as the overall economy or the globalization of markets. When the firms’ equilibria are not consistent with industry equilibrium, market fluctuations occur, and various adjustments follow.