As a population of organisations grows, early growth raises legitimacy and encourages founding, while later growth raises competition and encourages failure.
Hannan and Carroll's model produces a characteristic inverted-U in founding rates and a U in mortality: the first firms in a new field must establish that the form is a real and viable thing, which helps everyone, and once that is settled additional entrants only crowd. It fits populations from newspapers to breweries to unions.
In practice
- An early entrant in a new category spends money teaching customers the category exists, and competitors benefit.
- The tenth firm to enter finds legitimacy free and customers scarce.
- Further reading
- Wikipedia
- Subject
- Organizations & Bureaucracy
- Essay
- Why organisations learn, harden and decline