Traditional oligopoly theories of markets where products are differentiated predict that entry of new firm enhances competition and thereby brings down the equilibrium market price. These theoretical predictions are, however, often challenged by contrasting empirical evidence suggesting that price increases with actual entries (Perloff, Suslow, Sequin ('96); Thomadsen ('05)). We provide a theoretical model in support of such empirical evidence by incorporating switching costs. Intuitively, if consumers have to incur costs when they switch products, a monopolist facing potential entry has incentives to price below the monopoly level and expand its consumer base pre-entry. By doing so, the incumbent firm can take full advantage of the lock-in effect post-entry by charging higher prices only to those consumers facing switching costs instead of directly competing with the entrant.
{"title":"Price Effects of Entries","authors":"Ki-Eun Rhee","doi":"10.2139/ssrn.982989","DOIUrl":"https://doi.org/10.2139/ssrn.982989","url":null,"abstract":"Traditional oligopoly theories of markets where products are differentiated predict that entry of new firm enhances competition and thereby brings down the equilibrium market price. These theoretical predictions are, however, often challenged by contrasting empirical evidence suggesting that price increases with actual entries (Perloff, Suslow, Sequin ('96); Thomadsen ('05)). We provide a theoretical model in support of such empirical evidence by incorporating switching costs. Intuitively, if consumers have to incur costs when they switch products, a monopolist facing potential entry has incentives to price below the monopoly level and expand its consumer base pre-entry. By doing so, the incumbent firm can take full advantage of the lock-in effect post-entry by charging higher prices only to those consumers facing switching costs instead of directly competing with the entrant.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"73 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127326951","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Niron Hashai, C. Asmussen, Gabriel R. G. Benito, B. Preuss
This paper expands entry mode literature by referring to multiple modes exerted in different value chain activities within and across host markets, rather than to a single entry mode at the host market level. Scale of operations and knowledge intensity are argued to affect firms' entry mode diversity across value chain activities and host markets. Analyzing a sample of Israeli based firms we show that larger firms exhibit a higher degree of entry mode diversity both across value chain activities and across host markets. Higher levels of knowledge intensity are also associated with more diversity in firms' entry modes across both dimensions.
{"title":"Predicting the Diversity of Foreign Entry Modes","authors":"Niron Hashai, C. Asmussen, Gabriel R. G. Benito, B. Preuss","doi":"10.2139/ssrn.969036","DOIUrl":"https://doi.org/10.2139/ssrn.969036","url":null,"abstract":"This paper expands entry mode literature by referring to multiple modes exerted in different value chain activities within and across host markets, rather than to a single entry mode at the host market level. Scale of operations and knowledge intensity are argued to affect firms' entry mode diversity across value chain activities and host markets. Analyzing a sample of Israeli based firms we show that larger firms exhibit a higher degree of entry mode diversity both across value chain activities and across host markets. Higher levels of knowledge intensity are also associated with more diversity in firms' entry modes across both dimensions.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127101708","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2007-01-01DOI: 10.1111/j.1530-9134.2008.00172.x
Luís M. B. Cabral, T. W. Ross
The received wisdom is that sunk costs create a barrier to entry - if entry fails, then the entrant, unable to recover sunk costs, incurs greater losses. In a strategic context where an incumbent may prey on the entrant, sunk entry costs have a countervailing effect: they may effectively commit the entrant to stay in the market. By providing the entrant with commitment power, sunk investments may soften the reactions of incumbents. The net effect may imply that entry is more profitable when sunk costs are greater.
{"title":"Are Sunk Costs a Barrier to Entry?","authors":"Luís M. B. Cabral, T. W. Ross","doi":"10.1111/j.1530-9134.2008.00172.x","DOIUrl":"https://doi.org/10.1111/j.1530-9134.2008.00172.x","url":null,"abstract":"The received wisdom is that sunk costs create a barrier to entry - if entry fails, then the entrant, unable to recover sunk costs, incurs greater losses. In a strategic context where an incumbent may prey on the entrant, sunk entry costs have a countervailing effect: they may effectively commit the entrant to stay in the market. By providing the entrant with commitment power, sunk investments may soften the reactions of incumbents. The net effect may imply that entry is more profitable when sunk costs are greater.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"161 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"119533186","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
To what extent are firms kept out of a market by patents covering related technologies? Do patents held by potential entrants make it easier to enter markets? We estimate the empirical relationship between market entry and patents for 27 narrowly defined categories of software products during the period 1990--2004. Controlling for demand, market structure, average patent quality, and other factors, we find that a 10% increase in the number of patents relevant to market reduces the rate of entry by 3%--8%, and this relationship intensified following expansions in the patentability of software in the mid-1990s. However, potential entrants with patent applications relevant to a market are more likely to enter it. Finally, patents appear to substitute for complementary assets in the entry process, because patents have both greater entry-deterring and entry-promoting effects for firms without prior experience in other markets. This paper was accepted by Bruno Cassiman, business strategy.
{"title":"Entry and Patenting in the Software Industry","authors":"I. Cockburn, Megan J. MacGarvie","doi":"10.1287/mnsc.1110.1321","DOIUrl":"https://doi.org/10.1287/mnsc.1110.1321","url":null,"abstract":"To what extent are firms kept out of a market by patents covering related technologies? Do patents held by potential entrants make it easier to enter markets? We estimate the empirical relationship between market entry and patents for 27 narrowly defined categories of software products during the period 1990--2004. Controlling for demand, market structure, average patent quality, and other factors, we find that a 10% increase in the number of patents relevant to market reduces the rate of entry by 3%--8%, and this relationship intensified following expansions in the patentability of software in the mid-1990s. However, potential entrants with patent applications relevant to a market are more likely to enter it. Finally, patents appear to substitute for complementary assets in the entry process, because patents have both greater entry-deterring and entry-promoting effects for firms without prior experience in other markets. \u0000 \u0000This paper was accepted by Bruno Cassiman, business strategy.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"159 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116741313","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2005-06-30DOI: 10.17533/udea.le.n63a2659
Luis H. Gutiérrez, C. Pombo
El artículo analiza la entrada de firmas y rotación de la productividad promedio en la industria petroquímica colombiana para el período 1974-1998. Los resultados muestran que los entrantes exitosos dieron forma a la productividad de la industria e indujeron a la reestructuración de las plantas existentes. Los flujos de entrada crecieron constantemente en el sector de plásticos, a pesar de los cambios de política comercial. La descomposición del crecimiento de la productividad total de los factores muestra que el efecto de las empresas establecidas domina sobre el efecto de rotación de empresas. Los resultados econométricos sugieren que las barreras a la entrada, asociadas con el licenciamiento de la tecnología y la dependencia de materias primas importadas disuaden la entrada, mientras que variables complementarias del mercado como los niveles de productividad, crecimiento en la construcción de vivienda y competencia periférica inducen la entrada de firmas. Palabras clave: entrada, rotación, productividad total factorial, industria petroquímica.
{"title":"Firm Entry and Productivity Turnovers in Import Substituting Markets: Evidence from the Petrochemical Industry in Colombia","authors":"Luis H. Gutiérrez, C. Pombo","doi":"10.17533/udea.le.n63a2659","DOIUrl":"https://doi.org/10.17533/udea.le.n63a2659","url":null,"abstract":"El artículo analiza la entrada de firmas y rotación de la productividad promedio en la industria petroquímica colombiana para el período 1974-1998. Los resultados muestran que los entrantes exitosos dieron forma a la productividad de la industria e indujeron a la reestructuración de las plantas existentes. Los flujos de entrada crecieron constantemente en el sector de plásticos, a pesar de los cambios de política comercial. La descomposición del crecimiento de la productividad total de los factores muestra que el efecto de las empresas establecidas domina sobre el efecto de rotación de empresas. Los resultados econométricos sugieren que las barreras a la entrada, asociadas con el licenciamiento de la tecnología y la dependencia de materias primas importadas disuaden la entrada, mientras que variables complementarias del mercado como los niveles de productividad, crecimiento en la construcción de vivienda y competencia periférica inducen la entrada de firmas. Palabras clave: entrada, rotación, productividad total factorial, industria petroquímica. ","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"2015 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132997405","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Cash flow from operations can be controlled using real options. In this normative paper, we derive numerically in a univariate discrete time model, extension of (Kulatilaka, 1988), the expanded NPV of an industrial investment and, simultaneously, state variable thresholds for the whole life of the project to optimally exercise real options. In this framework, we model the whole distribution of expanded NPV using a Markov Chain Monte Carlo method, computing forward the same NPV previously derived in a backward induction process. A number of original results is derived for an all equity firm. Cash flow distribution and CfaR is derived for each epoch in the life of the project. A VaR for the expanded NPV at time zero is derived. The intuition of (Trigeorgis, 1996) page 123 about the risk controlling properties of real options is proved and quantified. These new methods have been applied to a numerical example in shipping finance.
{"title":"Value at Risk (VAR) in Real Options Analysis","authors":"Giuseppe Alesii","doi":"10.2139/ssrn.395445","DOIUrl":"https://doi.org/10.2139/ssrn.395445","url":null,"abstract":"Cash flow from operations can be controlled using real options. In this normative paper, we derive numerically in a univariate discrete time model, extension of (Kulatilaka, 1988), the expanded NPV of an industrial investment and, simultaneously, state variable thresholds for the whole life of the project to optimally exercise real options. In this framework, we model the whole distribution of expanded NPV using a Markov Chain Monte Carlo method, computing forward the same NPV previously derived in a backward induction process. A number of original results is derived for an all equity firm. Cash flow distribution and CfaR is derived for each epoch in the life of the project. A VaR for the expanded NPV at time zero is derived. The intuition of (Trigeorgis, 1996) page 123 about the risk controlling properties of real options is proved and quantified. These new methods have been applied to a numerical example in shipping finance.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"205 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123258411","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we consider the empirical problem of estimating the underlying profit function of firms from “revealed choice” data on entry in a cross-section of oligopoly markets. One problem faced in the earlier literature is the problem of multiple equilibrium, which makes traditional maximum likelihood estimation (MLE) techniques difficult to implement. The problem of multiple equilibria is serious enough that Sutton (2000), for example, suggests giving up on parameter estimation in the case of realistic entry models. However, Manski and co-authors (e.g. Manski and Tamer (2002)) encourage work on a related class of “incomplete” parametric models. In this paper, we combine the two ideas and consider the estimation of complicated entry models that exhibit multiple equilibria, without attempting to resolve the equilibrium selection problem.
{"title":"Confidence Regions for Parameters in Discrete Games with Multiple Equilibria, with an Application to Discount Chain Store Location","authors":"D. Andrews, Steven T. Berry, P. Barwick","doi":"10.2139/ssrn.3417207","DOIUrl":"https://doi.org/10.2139/ssrn.3417207","url":null,"abstract":"In this paper, we consider the empirical problem of estimating the underlying profit function of firms from “revealed choice” data on entry in a cross-section of oligopoly markets. One problem faced in the earlier literature is the problem of multiple equilibrium, which makes traditional maximum likelihood estimation (MLE) techniques difficult to implement. The problem of multiple equilibria is serious enough that Sutton (2000), for example, suggests giving up on parameter estimation in the case of realistic entry models. However, Manski and co-authors (e.g. Manski and Tamer (2002)) encourage work on a related class of “incomplete” parametric models. In this paper, we combine the two ideas and consider the estimation of complicated entry models that exhibit multiple equilibria, without attempting to resolve the equilibrium selection problem.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122576960","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The tyre industry in India grew slowly until the 1970's when there was a spurt of companies entering the market. During 1920's a few multinationals like Firestone, Goodyear and Dunlop entered the market as trading companies. There were no manufacturing facilities in India. Subsequently after 1936 multinationals started subsidiaries. During the 1970s many business houses entered the tyre industry market. It is estimated that during 1988 there was a demand for 17.7 million tyres in India. The demand is expected to reach 44 million tyres by the year 2000.
{"title":"Tyre Industry in India: Entry Pattern of Foreign Companies","authors":"S. Ramu","doi":"10.2139/SSRN.2171558","DOIUrl":"https://doi.org/10.2139/SSRN.2171558","url":null,"abstract":"The tyre industry in India grew slowly until the 1970's when there was a spurt of companies entering the market. During 1920's a few multinationals like Firestone, Goodyear and Dunlop entered the market as trading companies. There were no manufacturing facilities in India. Subsequently after 1936 multinationals started subsidiaries. During the 1970s many business houses entered the tyre industry market. It is estimated that during 1988 there was a demand for 17.7 million tyres in India. The demand is expected to reach 44 million tyres by the year 2000.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1991-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129875664","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines barriers to entry in the South African retail banking informed by Capitec's experiences as an entrant. In some ways Capitec's experience is exceptional. It surged ahead early attempts to bank the excluded from banks such as Ubank (former Teba Bank) and the Mzansi initiative. Capitec's entry and growth in transactional banking sparked a competitive response from incumbents, especially First National Bank and ABSA. The study illuminates how Capitec was able to pursue the opportunities available in this concentrated and highly regulated sector. We also contrast Capitec's success, especially since 2008, to that of other entrants in the retail banking sector. Finally, the study will consider whether there are ways in which the barriers which Capitec faced could be reduced for future entrants. The results show that Capitec overcame customer's reluctance to switch, a key barrier to entry in retail banking, by developing a simple product that is easily understood. It also worked deliberately to convert its lending clients into transactional banking clients.
{"title":"Competition, Barriers to Entry and Inclusive Growth - Capitec Case Study","authors":"Gertrude Makhaya, Nicholas Nhundu","doi":"10.2139/ssrn.2728273","DOIUrl":"https://doi.org/10.2139/ssrn.2728273","url":null,"abstract":"This study examines barriers to entry in the South African retail banking informed by Capitec's experiences as an entrant. In some ways Capitec's experience is exceptional. It surged ahead early attempts to bank the excluded from banks such as Ubank (former Teba Bank) and the Mzansi initiative. Capitec's entry and growth in transactional banking sparked a competitive response from incumbents, especially First National Bank and ABSA. The study illuminates how Capitec was able to pursue the opportunities available in this concentrated and highly regulated sector. We also contrast Capitec's success, especially since 2008, to that of other entrants in the retail banking sector. Finally, the study will consider whether there are ways in which the barriers which Capitec faced could be reduced for future entrants. The results show that Capitec overcame customer's reluctance to switch, a key barrier to entry in retail banking, by developing a simple product that is easily understood. It also worked deliberately to convert its lending clients into transactional banking clients.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134512980","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This dissertation examines firms’ entrepreneurial investments in anticipation of entry into a nascent industry. In the first essay, I study the intertwined processes of firm-level economic value capture and industry-level ecosystem formation that underpin incubation of nascent industries. The second essay focuses on the capability antecedents of a firm entry into a nascent industry and makes a distinction between a firm’s pre-entry and pre-investment capabilities. In the third essay, I discuss the nature of the capability reconfiguration efforts that are undertaken by firms in anticipation of entry into nascent industries and their differential nature given firms’ historical antecedents.
{"title":"Reconfiguration Strategies, Entrepreneurial Entry and Incubation of Nascent Industries: Three Essays - Dissertation Summary","authors":"Mahka Moeen","doi":"10.2139/ssrn.2447395","DOIUrl":"https://doi.org/10.2139/ssrn.2447395","url":null,"abstract":"This dissertation examines firms’ entrepreneurial investments in anticipation of entry into a nascent industry. In the first essay, I study the intertwined processes of firm-level economic value capture and industry-level ecosystem formation that underpin incubation of nascent industries. The second essay focuses on the capability antecedents of a firm entry into a nascent industry and makes a distinction between a firm’s pre-entry and pre-investment capabilities. In the third essay, I discuss the nature of the capability reconfiguration efforts that are undertaken by firms in anticipation of entry into nascent industries and their differential nature given firms’ historical antecedents.","PeriodicalId":169574,"journal":{"name":"ERN: Entry & Exit (Topic)","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128134395","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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