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Entry and exit in disequilibrium

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  • Burke, Andrew
  • van Stel, André

Abstract

Most entrepreneurship theory depicts disequilibrium as the most common state for entrepreneurial activity and yet remarkably very little empirical research investigates the role of entry and exit in this type of external environment. Drawing on economics and organizational ecology we outline reasons why the interrelation between entry, exit and incumbent firms is likely to vary when the actual number of firms is higher or lower than the number that a market can sustain. We also introduce a new empirical methodology to explain entry and exit levels in two different types of disequilibria comprising situations when markets under and over shoot carrying capacity. Using a data set on the retail industry, we find that in undershoots a lack of competition between incumbent firms restores equilibrium by creating room for new-firm entry. In contrast, in overshoots competition induced by new firms (in particular strong displacement) restores equilibrium. We also find that equilibrium-restoring mechanisms are faster in over than undershoots. The results highlight that the behaviour and impact of entry and exit varies depending on the type of disequilibrium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Business Venturing.

Volume (Year): 29 (2014)
Issue (Month): 1 ()
Pages: 174-192

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Handle: RePEc:eee:jbvent:v:29:y:2014:i:1:p:174-192

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Web page: http://www.elsevier.com/locate/jbusvent

Related research

Keywords: Entry; Exit; Carrying capacity; Disequilibrium; Dynamics;

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References

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  1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  2. David B. Audretsch & Roy Thurik & Andre van Stel & M.A. Carree, 2006. "Does Self-Employment Reduce Unemployment?," Papers on Entrepreneurship, Growth and Public Policy, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group 2005-07, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
  3. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 808-27, August.
  4. Geroski, Paul A, 2000. "Exploring the Niche Overlaps Between Organizational Ecology and Industrial Economics," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2649, C.E.P.R. Discussion Papers.
  5. Minniti, Maria & Lévesque, Moren, 2008. "Recent developments in the economics of entrepreneurship," Journal of Business Venturing, Elsevier, vol. 23(6), pages 603-612, November.
  6. Parker,Simon C., 2006. "The Economics of Self-Employment and Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521030632, 9.
  7. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-46, September.
  8. Martin Carree, 2002. "Does Unemployment Affect the Number of Establishments? A Regional Analysis for US States," Regional Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(4), pages 389-398.
  9. Heij, Christiaan & de Boer, Paul & Franses, Philip Hans & Kloek, Teun & van Dijk, Herman K., 2004. "Econometric Methods with Applications in Business and Economics," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199268016, October.
  10. Schultz, Theodore W, 1980. " Investment in Entrepreneurial Ability," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 82(4), pages 437-48.
  11. Burke, Andrew E & FitzRoy, Felix R & Nolan, Michael A, 2000. " When Less Is More: Distinguishing between Entrepreneurial Choice and Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(5), pages 565-87, December.
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Cited by:
  1. Albiol, Judit, 2014. "The Significance of Business Exit for Future Entrepreneurial Activity," Working Papers 2072/238221, Universitat Rovira i Virgili, Department of Economics.

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