vertically-related industries; network; industrial concentration; entry; exit.

The paper develops the argument that the long-term structural evolution of an industry depends on the evolution of a vertically-related, downstream industry. We analyse two pairs of vertically-related industries, the jet and turboprop aircraft and engine industries, since the first introduction of the jet and turboprop technologies to 1998. The paper shows that the evolutionary dynamics of the downstream industry, in terms of number of firms and products, entry, exit and concentration, is transmitted to the upstream industry via the structure of the network of vertical exchange relations. We identify two network configurations, partitioned and hierarchical, and show that they are responsible for sharply different transmission effects. An econometric analysis is carried out to demonstrate this difference in the turboprop and jet markets.

forthcoming in International Journal of Industrial Organization