Capabilities,technologies, and firm exit during industry shakeout: Evidence from the global solar photovoltaic industry

Research Summary: Explanations of entrants’ survival in an emerging industry are premised on pre‐entry capabilities or technology entry choices prior to the emergence of the dominant design. We consider how these drivers interact to strengthen or nullify firms’ pre‐entry advantage, and facilitate adaptation as the industry evolves. We also expand the treatment of exit by separating dissolution from acquisition, in which firms’ capabilities continue to be utilized in the industry. Studying a recent shakeout in the global solar photovoltaic industry, we find that pre‐entry capabilities and technology choices act in a complementary manner for some firms, thereby enhancing survival, and as buffers against exit for others. Nearly half of exits were via acquisitions, and technology choice at entry played an important role in determining how firms exited. Managerial Summary: New industries are often characterized by intense technology competition that culminates in a dominant technology followed by industry shakeout. Although prior research underscores the central role of technology choice and firm capabilities to survival, we do not actually know how firms with different capabilities and who have made competing technology choices survive an industry shakeout. In this article, we show how entrants’ capabilities and technology choices can act in a complementary manner for some firms, enhancing their chance of survival, and as buffers against failure for others. Moreover, we explain why some firms that do exit are acquired, when others are dissolved.     

Sorting, Selection, and Industry Shakeouts

This paper presents a model of industry dynamics in which worker abilities are complements in production, but frictions permit only gradual sorting among firms. As an industry matures, segregation by skill becomes more marked, the wage distribution widens, and so does the distribution of firm size. Eventually, firms that have ended up with predominantly low-quality workers will exit. The model generates shakeouts with characteristics similar to empirical observation only for intermediate values of entry costs.      

The determinants of entry and exit rates into U.S. manufacturing industries

Entry and exit rates are examined across a fairly large sample of 4-digit U.S. manufacturing industries. Market growth significantly increases (reduces) entry (exit) rates. Profits increase entry rates. Advertising clearly acts as an entry barrier. Sunk capital costs seem to deter exit. While entry and exit rates are related in the sample, whether they are simultaneously determined is unclear.     

An examination of industry exit patterns

Exit, like entry, must be unobstructed so that resource reallocation does follow changing market conditions. Indices of two potential barriers to exit are created in order to study their relationship to observed industry exit patterns. One, an index of the structural barrier, reflects the durability and specificity of the assets needed to produce the product. The other, an index of the corporate strategy barrier, reflects the complementarity of one product with other products the firms produce. The results strongly suggest that these barriers do impede the flow of resources out of certain industries.     

退出权和惩罚机制在俱乐部物品供给中的作用——以商会提供企业互助金为例

俱乐部物品有效供给的制度安排既要仿照市场机制设置较低的进入与退出成本,也要解决私人联合供给时出现的搭便车现象,对违约行为进行严重的惩罚制裁。本文基于俱乐部物品的本质属性,对退出权与惩罚机制的经济作用进行了理论分析,并通过商会提供企业互助金的成功案例验证了所得结论的有效性。     

中国企业的进入退出--1985-2000年汽车与电冰箱产业的案例研究

本文通过构建一个简单的模型来解释和度量企业的进入退出，并将该模型应用于1985—2000年期间中国两个重要产业——汽车制造业和电冰箱制造业的实证研究，目的在于阐明中国企业进入退出的真实原因，希望能对中国产业组织政策的制定贯彻有所启示。统计检验揭示了中国企业进入退出的某些真实特点，在此基础上得出了结论。     

The dynamics of industrial organization

This paper introduces the special issue of The Review of Industrial Organization on ‘The Dynamics of Industrial Organization’. What binds these papers together is a focus on markets in motion—the process by which new firms enter an industry, either grow and survive, or else ultimately exit out of the industry. In contrast to more traditional static analyses, the concern of these papers is identifying where do firms come from and what happens subsequent to their entry. Influences of geographic as well as product space are found to exert an influence on the dynamics of industrial organization.

     

Entry and exit in retailing: Incentives, barriers, displacement and replacement

In this study the determinants of entry and exit and the interrelationship between these market phenomena are investigated. We examine incentives, barriers, displacement and replacement for a panel data-set of 23 Dutch shoptypes for the 1981–1988 period. Results indicate that profit as a ratio of modal income, growth of consumer spending and growing unemployment are important incentives to enter and disincentives to exit. Requirements of floorspace and professional skills appear to reduce entry rates. We find evidence for entry and exit to interact but not to be simultaneously determined. The implication being that entry (exit) has a separate influence on exit (entry) next to market incentives and entry and exit barriers.     

Entry and exit in Dutch manufacturing industries

The purpose of this paper is to analyse entry and exit of establishments in 71 3-digit industries in Dutch manufacturing between 1986 and 1990. A distinction is made between existing firm entry and new firm entry and between general exit and exit by bankruptcy. The incentive effect of profitability and the barrier effect of capital intensity and advertising intensity appear to be stronger for new firm entry than for existing firm entry. Growth and capital intensity turn out to reduce exit by bankruptcy, whereas R&D intensity reduces general exit. The positive impact of general exit on new firm entry and vice versa points to replacement and displacement.An earlier version of this paper was presented at the 21st annual EARIE conference, Crete, Greece, September 4–6, 1994. We thank David Audretsch, Martin Carree, Roy Thurik and participants of the conference for valuable comments.     

Surviving the gales of creative destruction: the determinants of product turnover

Innovative industries are often characterized by rapid product turnover. Product longevity may be driven by both a product's position within a market as well as its position within a firm's larger product portfolio. However, we have little understanding of the relative importance of these factors in determining product turnover and how they interact as an industry evolves. Although researchers have invested substantial effort in analyzing firm survival and turnover, there are far fewer studies of the determinants of product survival and turnover. We use hazard rate models and count regression models to describe the behavior of firms and their products with a new and detailed database on the laser printer industry. We show, first, that competition and market structure variables have a large impact on both speeding product exit and delaying product entry. Second, there is some evidence that firms that have maintained a high market share for a number of years keep their products on the market longer than those with lower market share. Finally, firms with high innovative capacity tend to enter markets frequently, but withdraw their products at average rates. Firms with strong brands tend to introduce few products and withdraw their products slowly. With these findings, the paper links product entry and exit decisions to the broader literature on firm strategic and product management. Copyright © 2006 John Wiley & Sons, Ltd.     

An empirical model of entry and exit in airline markets

This article considers the effect of airline hub-and-spoke systems on the entry and exit behavior of rival firms in the U.S. airline industry. An analysis of simple entry and exit decisions provides insight into equilibrium conditions that are used to specify discrete choice econometric models. The empirical evidence indicates that hub-and-spoke network characteristics are significant determinants of entry and exit decisions in individual citypair markets.     

中国服务业进入退出的影响因素——地区和行业面板数据的实证研究

本文利用14个细分行业和31个省份的面板数据,分别从行业和地区层面对影响我国服务业进入退出的各种因素进行了实证检验。实证结果表明,行业本身的盈利前景是吸引企业进入服务业的主要因素,服务业的进入退出更多是市场机制作用的结果。然而,企业在进入服务业时也面临着因行业的专业化壁垒、高素质劳动力稀缺和在位企业扩大经营规模的策略性行为导致的进入障碍,特别是在转轨时期,政府对服务业的行政管制、垄断经营以及对制造业的控制都会制约服务业的自由进入和退出。并且,相对于经济性的进入障碍,政府的控制力对服务业进入退出机制的扭曲要更严重。     

OPEN VERSUS CLOSED FIRMS AND THE DYNAMICS OF INDUSTRY EVOLUTION*

We develop a model of industry evolution in which firms choose proprietary standards (closed firm) or adopt a common standard (open firm). A closed entrant can capture multiple profits whereas an open entrant faces lower entry barriers: The odds of closed entry (relative to open entry) decrease with price and eventually open entry becomes more likely. While initially closed firms have better survival because they can offset losses in one component with profits from another, the situation is reversed when prices fall below a threshold. These entry and exit dynamics can lead the industry away from its long run equilibrium.     

Does Big Drive Out Small?

This paper measures the impact of the entry of large supermarkets on incumbents of various sizes. Contrary to the conventional notion that big stores drive small rivals out of the market, data from Tokyo in the 1990s show that large supermarkets’ entry induces the exit of existing large and medium-size competitors, but improves the survival rate of small supermarkets. These findings highlight the role of store size as an important dimension of product differentiation. Size-based entry regulations would appear to protect big incumbents, at the expense of small incumbents and potential entrants.     

The determinants of entry and exit reconsidered

In this paper we empirically examine the hypothesis that there is a symmetrical relationship between entry and exit barriers. The analysis, using Canadian cross-section data, proceeds in two stages. In the first stage we estimate entry and exit equations which ignore the possibility that displacement occurs (that entry causes exit). These results indicate that there is symmetry in the determinants of entry and exit, but that the exit equation is misspecified. In the second stage, we estimate a model in which entrants are allowed to displace incumbents (cause exit). These results indicate much less symmetry primarily because in the absence of entry barriers, entry occurs and incumbents are displaced. We conclude that symmetry exists, but in the ex-ante sense that barriers to exit are barriers to entry.     

Price asymmetries and the path dependence of market power: Evidence from the U.S. airline industry

This paper uncovers price asymmetries across oligopolistic and monopolistic markets that are seemingly identical in structure but different in competitive history. This is done by identifying “quiet life” markets that have not (yet) experienced a change in structure, and “non-quiet life” markets that have been disrupted by firm entry and/or exit. Using a long panel dataset from the U.S. airline industry, we find that quiet life duopolies price significantly higher than duopolies that come about by entry in monopoly, and that quiet life monopolies price significantly lower than monopolies that come about by exit in duopoly. We show that the path towards a particular market structure matters for the determination of prices and explore several mechanisms that likely explain the price asymmetries, including engagement in anticompetitive behaviour, adjustment behaviour to market structure changes, and the cost heterogeneity of competing firms.     

Exchange rate fluctuations,plant turnover and productivity

In a small open economy, fluctuations in the real exchange rate can affect plant turnover, and thus aggregate productivity, by altering the makeup of plants that populate the market. This paper develops a structural model that captures the effect of plant-level productivity and real exchange rate fluctuations on plant entry and exit decisions, and how this, in turn, affects average industry productivity. Using plant-level data for a single industry, the model's dynamic parameters are estimated in two-stages using the Nested-Pseudo Likelihood algorithm and the Method of Simulated Moments. Simulations of the model are used to investigate the effects of shocks to the exchange rate process on productivity. The results suggest that, given the mechanisms highlighted in the model, transitory and permanent depreciations have similar long-term effects on average industry productivity.     

Entry through Acquisition: Determinants of Multinational Firm Choices

This paper examines the factors that determine the decision of multinational firms to enter a foreign market through acquisition. In addition to the traditional industry variables attracting or discouraging entry through their effects on expected returns, the relative size of multinational entry in Greece in 1987–96 is found to be affected by a new group of variables, shaping rational profit expectations and characterizing the target, the industry and the origin of the buyer. A better understanding of the decision to enter a market through acquisition instead of greenfield investment and of its possible consequences is thus provided.     

Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site

This paper explores entry and exit at a price comparison site (PCS) where the sunk costs of participation are effectively zero. We first use an unbalanced panel of 295 products on NexTag.com to estimate an error correction model of net entry. Although the results support our characterization of the PCS as a zero sunk cost market in which potential sellers behave as Kirznerian entrepreneurs in responding to opportunities, it is clear the net entry flow involves participants with widely differing behavior. This is investigated by examining exit and re-entry decisions at the seller level, which reveal that size and reputation determine individual responses to market opportunities.     

The role of firm resources and organizational attributes in determining entry timing: a cross-industry study

We investigate the factors that influence the timing of entry of firms into new industries based on new technology. Consistent with previous research, it is hypothesized that firm resources and organizational attributes influence entry timing. Unlike previous research, there is specific consideration of how industry setting—specifically, the extent to which it offers first mover advantages—influences the ability to predict timing of entry. The ability to explain entry timing differed across industries, with success occurring in the industry with strong first mover advantages. Two categories of resources, technological and marketing, were found to be associated with early entry. The organizational attributes that influenced early entry were commitment to a threatened market and (surprisingly) greater size. © 1998 John Wiley & Sons, Ltd.