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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.

Suggested Citation

  • Burke, Andrew & van Stel, André, 2014. "Entry and exit in disequilibrium," Journal of Business Venturing, Elsevier, vol. 29(1), pages 174-192.
    • Handle: RePEc:eee:jbvent:v:29:y:2014:i:1:p:174-192
    DOI: 10.1016/j.jbusvent.2013.02.004
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    References listed on IDEAS

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    Cited by:

    1. Srivastava, Smita & Sahaym, Arvin & Allison, Thomas H., 2021. "Alert and Awake: Role of alertness and attention on rate of new product introductions," Journal of Business Venturing, Elsevier, vol. 36(4).
    2. Albiol, Judit, 2014. "The Significance of Business Exit for Future Entrepreneurial Activity," Working Papers 2072/238221, Universitat Rovira i Virgili, Department of Economics.
    3. Christina Guenther & Simon Oertel & Peter Walgenbach, 2016. "It's all about Timing: Age–Dependent Consequences of Founder Exits and New Member Additions," Entrepreneurship Theory and Practice, , vol. 40(4), pages 843-865, July.
    4. Dennis Fok & André Stel & Andrew Burke & Roy Thurik, 2019. "How entry crowds and grows markets: the gradual disaster management view of market dynamics in the retail industry," Annals of Operations Research, Springer, vol. 283(1), pages 1111-1138, December.
    5. Juan Sanchis Llopis & José María Millán & Rui Baptista & Andrew Burke & Simon Parker & Roy Thurik, 2015. "Good times, bad times: entrepreneurship and the business cycle," Post-Print hal-02013660, HAL.
    6. Martin Carree & Marcus Dejardin, 2020. "Firm Entry and Exit in Local Markets: 'Market Pull' or 'Unemployment Push' Effects, or Both?," Post-Print halshs-03220690, HAL.
    7. Ziliang Deng & Ruey-Jer Bryan Jean & Rudolf R. Sinkovics, 2017. "Polarizing Effects of Early Exporting on Exit," Management International Review, Springer, vol. 57(2), pages 243-275, April.

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    More about this item

    Keywords

    Entry; Exit; Carrying capacity; Disequilibrium; Dynamics;
    All these keywords.

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • L00 - Industrial Organization - - General - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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