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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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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
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    4. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    5. Audretsch, David B. & Fritsch, Michael, 1993. "A Note on the Measurement of Entry Rates," Freiberg Working Papers 1993,05, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
    6. Thurik, A. Roy & Carree, Martin A. & van Stel, André & Audretsch, David B., 2008. "Does self-employment reduce unemployment?," Journal of Business Venturing, Elsevier, vol. 23(6), pages 673-686, November.
    7. Geroski, P A, 2001. "Exploring the Niche Overlaps between Organizational Ecology and Industrial Economics," Industrial and Corporate Change, Oxford University Press, vol. 10(2), pages 507-540, June.
    8. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-846, September.
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    Cited by:

    1. Albiol, Judit, 2014. "The Significance of Business Exit for Future Entrepreneurial Activity," Working Papers 2072/238221, Universitat Rovira i Virgili, Department of Economics.
    2. repec:spr:manint:v:57:y:2017:i:2:d:10.1007_s11575-016-0292-9 is not listed on IDEAS

    More about this item

    Keywords

    Entry; Exit; Carrying capacity; Disequilibrium; Dynamics;

    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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