A Gap for Me: Entrepreneurs and Entry
AbstractWe 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 since competition is endogenously more intense in larger markets. This result continues to hold when entrepreneurs can export their output to other markets, thereby incurring a unit transport cost or tariff. 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 InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 05-026.
Length: 30 pages
Date of creation: 30 Jun 2003
Date of revision: 29 Sep 2005
entrepreneurship; entry; exit; firm turnover; industry dynamics;
Other versions of this item:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-08 (All new papers)
- NEP-COM-2005-10-08 (Industrial Competition)
- NEP-ENT-2005-10-08 (Entrepreneurship)
- NEP-TID-2005-10-08 (Technology & Industrial Dynamics)
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