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The Birth of a New Market

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  • Bala, Venkatesh
  • Goyal, Sanjeev

Abstract

The authors consider a sequential decision model in which entrepreneurs decide on whether to enter a potential new market. Individual entrepreneurs have private expectations about the new market's viability. Over time, they learn about its viability from their own experience as well as that of earlier entrepreneurs. The distribution of the private expectations is said to be heterogeneous if external prior beliefs about the market's viability exist. The authors show that heterogeneity of expectations cuts both ways: while it facilitates the birth of viable markets, it also generates, via the existence of extremal beliefs, 'excessive' entry in nonviable markets. Copyright 1994 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 104 (1994)
Issue (Month): 423 (March)
Pages: 282-90

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Handle: RePEc:ecj:econjl:v:104:y:1994:i:423:p:282-90

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Cited by:
  1. Bala, Venkatesh & Goyal, Sanjeev, 1998. "Learning from Neighbours," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 595-621, July.
  2. Nicholas Dew & Stuart Read & Saras Sarasvathy & Robert Wiltbank, 2011. "On the entrepreneurial genesis of new markets: effectual transformations versus causal search and selection," Journal of Evolutionary Economics, Springer, vol. 21(2), pages 231-253, May.
  3. Horvath, Michael & Schivardi, Fabiano & Woywode, Michael, 2001. "On industry life-cycles: delay, entry, and shakeout in beer brewing," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1023-1052, July.
  4. Suma Athreye, 1997. "On Markets in Knowledge," Journal of Management and Governance, Springer, vol. 1(2), pages 231-253, June.
  5. Saras Sarasvathy & Nicholas Dew, 2005. "New market creation through transformation," Journal of Evolutionary Economics, Springer, vol. 15(5), pages 533-565, November.

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