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Does New Entry Drive Out Incumbents? Evidence from establishment-level data in Japan

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  • ITO Keiko
  • KATO Masatoshi

Abstract

Using establishment-level data in Japan, we examine the effects of new business entries on the probability of incumbents exiting the market. In particular, we estimate how the effects vary depending on the size of both the entrants and incumbents, which has not been explored in the literature. We find that while new business entries increase the probability that incumbents will exit, the effect differs significantly across sectors and depends on entrant and incumbent size. Although small establishments are the most likely to be driven out by new entries in all sectors, large incumbents are not always the most competitive, and, in the case of the tradable services sector, medium-sized establishments are the least likely to be affected by new entries. Moreover, our simple regression analysis shows a positive relationship between entry rates and employment growth in a region. New entries may promote resource reallocation and stimulate regional economies, possibly resulting in regional employment growth.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12034.

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Length: 50 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:eti:dpaper:12034

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  1. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
  2. David Neumark & Junfu Zhang & Stephen Ciccarella, 2005. "The Effects of Wal-Mart on Local Labor Markets," NBER Working Papers 11782, National Bureau of Economic Research, Inc.
  3. Niels Bosma & Erik Stam & Veronique Schutjens, 2011. "Creative destruction and regional productivity growth: evidence from the Dutch manufacturing and services industries," Small Business Economics, Springer, vol. 36(4), pages 401-418, May.
  4. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 227-45, September.
  5. Mariko Sakakibara & Michael E. Porter, 2001. "Competing At Home To Win Abroad: Evidence From Japanese Industry," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 310-322, May.
  6. Guimaraes, Paulo & Mata, José & Portugal, Pedro, 1995. "The Survival of New Plants: Start-up Conditions and Post-entry Evolution," CEPR Discussion Papers 1203, C.E.P.R. Discussion Papers.
  7. André van Stel & Mickey Folkeringa & Sierdjan Koster, 2010. "Start-ups as drivers of market mobility: An analysis at the region-sector level for the Netherlands," Scales Research Reports H200905, EIM Business and Policy Research.
  8. Honjo, Yuji, 2000. "Business failure of new firms: an empirical analysis using a multiplicative hazards model," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 557-574, May.
  9. Michael Fritsch & Udo Brixy & Oliver Falck, 2006. "The Effect of Industry, Region, and Time on New Business Survival – A Multi-Dimensional Analysis," Review of Industrial Organization, Springer, vol. 28(3), pages 285-306, 05.
  10. Parker,Simon C., 2009. "The Economics of Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521728355, October.
  11. Michael Fritsch & Alexandra Schroeter, 2007. "Why Does the Effect of New Business Formation Differ Across Regions?," Jena Economic Research Papers 2007-077, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  12. Mitsuru Igami, 2011. "Does Big Drive Out Small?," Review of Industrial Organization, Springer, vol. 38(1), pages 1-21, January.
  13. Michael Fritsch, 2008. "How does new business formation affect regional development? Introduction to the special issue," Small Business Economics, Springer, vol. 30(1), pages 1-14, January.
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