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on Technology and Industrial Dynamics |
| By: | Enrico Santarelli (University of Bologna, Max Planck Institute of Economics Jena, ENCORE Amsterdam, and IZA Bonn); Marco Vivarelli (Università Cattolica Piacenza, CSGR Warwick, Max Planck Institute of Economics Jena, and IZA Bonn) |
| Abstract: | This survey paper aims at critically discussing the recent literature on firm formation and survival and the growth of new-born firms. The basic purpose is to single out the microeconomic entrepreneurial foundations of industrial dynamics (entry and exit) and to characterise the founder’s ex-ante features in terms of likely ex-post business performance. The main conclusion is that entry of new firms is heterogeneous with innovative entrepreneurs being found together with passive followers, over-optimist gamblers and even escapees from unemployment. Since founders are heterogeneous and may make "entry mistakes", policy incentives should be highly selective, favouring nascent entrepreneurs endowed with progressive motivation and promising predictors of better business performance. This would lead to the least distortion in the post-entry market selection of efficient entrepreneurs. |
| Keywords: | entrepreneurship, new firm, survival, post-entry performance |
| JEL: | L10 M13 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2475&r=tid |
| By: | Jaap H. Abbring; Jeffrey R. Campbell |
| Abstract: | This paper considers the effects of raising the cost of entry for potential competitors on infinite-horizon Markov- perfect industry dynamics with ongoing demand uncertainty. All entrants serving the model industry incur sunk costs, and exit avoids future fixed costs. We focus on the unique equilibrium with last- in first-out expectations: a firm never exits before a younger rival does. When an industry can support at most two firms, we prove that raising barriers to a second producer’s entry increases the probability that some firm will serve the industry and decreases its long-run entry and exit rates. In numerical examples with more than two firms, imposing a barrier to entry stabilizes industry structure. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-06-29&r=tid |
| By: | Jaap H. Abbring; Jeffrey R. Campbell |
| Abstract: | This paper extends the static analysis of oligopoly structure into an infinite- horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first- out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, a sequence of thresholds describes firms’ equilibrium entry and survival decisions. Bresnahan and Reiss’s (1993) empirical analysis of oligopolists’ entry and exit assumes that such thresholds govern the evolution of the number of competitors. Our analysis provides an infinite-horizon game- theoretic foundation for that structure. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-06-28&r=tid |
| By: | Franco Malerba; Richard Nelson; Luigi Orsenigo; Sidney Winter |
| Abstract: | In this paper we present a history-friendly model of the changing vertical scope of computer firms during the evolution of the computer and semiconductor industries. The model is "history friendly", in that it attempts at replicating some basic, stylized qualitative features of the evolution of vertical integration on the basis of the causal mechanisms and processes which we believe can explain the history. The specific question addressed in the model is set in the context of dynamic and uncertain technological and market environments, characterized by periods of technological revolutions punctuating periods of relative technological stability and smooth technical progress. The model illustrates how the patterns of vertical integration and specialization in the computer industry change as a function of the evolving levels and distribution of firms’ capabilities over time and how they depend on the co-evolution of the upstream and downstream sectors. Specific conditions in each of these markets - the size of the external market, the magnitude of the technological discontinuities, the lock-in effects in demand - exert critical effects and feedbacks on market structure and on the vertical scope of firms as time goes by. Length 32 pages |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:esi:evopap:2006-19&r=tid |