Center for Culture, Organizations and Politics - Previously Affiliated

Between 1940 and 1950 the American pharmaceutical industry transformed itself from a collection of several hundred, small, barely profitable firms to a small group of large, highly profitable firms. The object of this paper is to use this case to understand how an industry evolves and, more specifically, to determine how a single industry comes to be dominated by a few large firms. This is in the tradition of recent studies that have examined the role of political, organizational, and social variables in the evolution of American industry(Dobbin 1994; Fligstein 2001; Perrow 2002). The intent here is to analyze different predictors of success following a population-level change, in a new case, one where firm success was previously considered the product of economic efficiency (Temin 1979; Temin 1980). To answer my specific question I employ a random-effect regression analysis on longitudinal data collected on the population of public firms between 1935-1955. I find that while the previous economic explanations may explain subsequent successes, they do not explain the initial change in the industry. Instead, the transformation of the industry into an oligopoly was largely the unintentional result of direct intervention by the US government.