Modularity, life cycle and new entry without fundamental patents: lessons from the American household refrigerator industry before and after the great crash of 1929

Abstract/Summary

Despite the absence of live fundamental patents, early movers in a new industry can face a daunting task to create a mass market. Using historical methods and rich archival materials we explore the role of modularity in shaping an industry’s market structure. We show how shifting dynamics undermined established industry “kingpins,” who invested heavily in product design, giant factories, and considerable marketing expenditures. However, those investments paved the way for new entrants, using lower-cost strategies. Falling costs associated with standardization, modularity, and third-party component manufacturers enabled late entrants to undercut the prices of the successful early movers, leading to a substantial “shake-in” of small firms and the dethroning of industry kingpins. The case of the household refrigerator shows the implications of a low intellectual property regime that captured value before the rise of a dominant design, but increasingly lost value capture on maturity.