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From Russia with Love: The Impact of Relocated Firms on Incumbent Survival

  • Oliver Falck

    ()

    (Ifo Institute for Economic Research at the University of Munich)

  • Christina Guenther

    ()

    (Max Planck Institute of Economics, Evolutionary Economics Group
    WHU- Otto Beisheim School of Management)

  • Stephan Heblich

    ()

    (Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group)

  • William R. Kerr

    ()

    (Harvard Business School, Entrepreneurial Management Unit)

We identify the impact of local firm concentration on incumbent performance with a quasi natural experiment. When Germany was divided after World War II, many firms in the machine tool industry fled the Soviet occupied zone to prevent expropriation. We show that the regional location decisions of these firms upon moving to western Germany were driven by non-economic factors and heuristics rather than existing industrial conditions. Relocating firms increased the likelihood of incumbent failure in destination regions, a pattern that differs sharply from new entrants. We further provide evidence that these effects are due to increased competition for local resources.

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Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 10-112.

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Length: 36 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:hbs:wpaper:10-112
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