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How Do Entrants Build Market Share? The Role of Demand Frictions

Author

Listed:
  • David Argente
  • Doireann Fitzgerald
  • Sara Moreira
  • Anthony Priolo

Abstract

We construct a new dataset to show that successful entrants in the consumer food sector build market share by adding new customers. Entrants reach new customers by entering more geographical markets, placing their product in more stores in these markets, and, for a positively selected subset of firms, advertising directly to customers. These activities are costly and are associated with persistent increases in quantities, but there are no differences in markups between new and mature markets. This confirms a central role for marketing and advertising in overcoming demand-side frictions that slow firm growth.

Suggested Citation

  • David Argente & Doireann Fitzgerald & Sara Moreira & Anthony Priolo, 2025. "How Do Entrants Build Market Share? The Role of Demand Frictions," American Economic Review: Insights, American Economic Association, vol. 7(2), pages 160-176, June.
    • Handle: RePEc:aea:aerins:v:7:y:2025:i:2:p:160-76
    DOI: 10.1257/aeri.20230289
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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