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Necessity Entrepreneurship and Competitive Strategy

  • Block, Jörn

    ()

    (University of Trier)

  • Kohn, Karsten

    ()

    (KfW Bankengruppe)

  • Miller, Danny

    ()

    (HEC Montreal)

  • Ullrich, Katrin

    ()

    (KfW Bankengruppe)

Many start-ups chose to compete with incumbent firms using one of two generic strategies: cost leadership or differentiation. Our study demonstrates how this choice depends on whether the startup was founded out of necessity. Our results, based on a representative data set of 4,568 German start-ups, show that necessity entrepreneurs are more likely than other entrepreneurs to pursue a cost leadership strategy, and less likely to pursue a differentiation strategy. Decomposition analyses further show that up to half of the difference in choice of strategy can be attributed to distinct endowments of human capital, socio-economic attributes, and start-up project characteristics that correlate with necessity entrepreneurship.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8219.

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Length: 31 pages
Date of creation: May 2014
Date of revision:
Publication status: forthcoming in: Small Business Economics.
Handle: RePEc:iza:izadps:dp8219
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