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A Gap for Me: Entrepreneurs and Entry

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  • Volker Nocke

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

We present a theory of entrepreneurial entry and exit decisions. Knowing their own managerial talent, entrepreneurs decide which market to enter, where markets differ in size. We obtain a striking sorting result: each entrant in a large market is more efficient than any entrepreneur in a smaller market. The result obtains since competition is endogenously more intense in larger markets. The sorting and price competition effects imply that the number of entrants (and hence product variety) may actually be smaller in larger markets. In the stochastic dynamic extension of the model, we show that the churning rate of entrepreneurs is higher in larger markets.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 03-019.

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Length: 30 pages
Date of creation: 30 Jun 2003
Date of revision:
Handle: RePEc:pen:papers:03-019

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Keywords: entrepreneurship; entry; exit; firm turnover; industry dynamics;

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  1. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 60(5), pages 1127-50, September.
  2. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2004. "Spatial Wage Disparities: Sorting Matters!," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4240, C.E.P.R. Discussion Papers.
  3. Donald R. Davis & David E. Weinstein, 2002. "Market size, linkages, and productivity: A study of Japanese regions," Discussion Papers, Columbia University, Department of Economics 0102-04, Columbia University, Department of Economics.
  4. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, Elsevier, vol. 47(1), pages 1-25, February.
  5. Chad Syverson, 2001. "Market Structure and Productivity: A Concrete Example," Working Papers, Center for Economic Studies, U.S. Census Bureau 01-06, Center for Economic Studies, U.S. Census Bureau.
  6. Sveikauskas, Leo A, 1975. "The Productivity of Cities," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 89(3), pages 393-413, August.
  7. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier.
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  9. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  10. Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
  11. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, Econometric Society, vol. 50(3), pages 649-70, May.
  12. Asplund, Björn Marcus & Nocke, Volker, 2000. "Imperfect Competition, Market Size and Firm Turnover," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2625, C.E.P.R. Discussion Papers.
  13. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 38(3), pages 569-594, September.
  14. Richard E. Baldwin & Frederic Robert-Nicoud, 2000. "Free trade agreements without delocation," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 33(3), pages 766-786, August.
  15. repec:att:wimass:8904 is not listed on IDEAS
  16. 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.
  17. Volker Nocke, 2000. "Monopolisation and Industry Structure," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0429, Econometric Society.
  18. Holmes, Thomas J & Schmitz, James A, Jr, 1990. "A Theory of Entrepreneurship and Its Application to the Study of Business Transfers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(2), pages 265-94, April.
  19. Khan, M. Ali & Sun, Yeneng, 1995. "Extremal structures and symmetric equilibria with countable actions," Journal of Mathematical Economics, Elsevier, vol. 24(3), pages 239-248.
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