Resource‐seeking agglomeration: a study of market entry in the lodging industry

We analyze whether firms prefer collocating with incumbent firms when choosing among markets to enter, highlighting the role of resource‐seeking as a motivation for collocation. We propose that entrants will locate near others possessing resources that can spill over, but will avoid locations where existing firms will exploit spillovers without contributing. To test these propositions, we analyze the location decisions of 570 new hotels in Texas between 1992 and 2000. We find that hotels are attracted to markets with branded upscale hotels. Further, we find that owners of upscale hotels avoid markets with hotels without similar resources. Copyright © 2004 John Wiley & Sons, Ltd.     

Threat of entry,asymmetric information,and pricing

This paper examines the impact of asymmetric information on incumbent firms' propensity to engage in limit pricing when faced with threat of entry. I draw from information economics to argue that incumbents will use price to respond ex ante to entry in situations characterized by asymmetric information. I suggest two situations in which asymmetric information can arise: when potential entrants are from outside the primary industry and when incumbent firms are members of R&D consortia. I then study pricing in the U.S. cable TV industry to show that pricing patterns of incumbent cable TV systems are consistent with limit pricing when the relationship between the incumbent and potential entrant is characterized by asymmetric information. Copyright © 2012 John Wiley & Sons, Ltd.     

Uniform Pricing as a Barrier to Entry

This paper considers an entry game in which an incumbent firm operates in a number of markets and a potential entrant can enter multiple or all of the markets. While price discrimination has usually been thought of as a barrier to entry, in our model it is not and instead, charging a uniform price across the markets can discourage entry. Partial entry occurs when the two firms' products are highly substitutable. In this case, uniform pricing raises the profits of both the incumbent and the entrant but reduces consumer and total welfare relative to price discrimination.     

Growth and survival: The moderating effects of local agglomeration and local market structure

One of the central explanations of the high failure rates of de novo entrants is the liability of smallness. As a corollary, most prior literature has suggested that firms should experience survival benefits from growth. In this paper, we argue that survival benefits need to be balanced against the potential cost of rapid growth, and they are contingent upon the structure of the environment. We predict a curvilinear relationship between an entrant's growth rate and failure, and argue that the relationship is contingent upon the local agglomeration of economic activity and the local structure of competition. We test and find support for our predictions using firm‐level longitudinal data of all de novo entrants into the Canadian manufacturing sector between 1984 and 1998. Copyright © 2014 John Wiley & Sons, Ltd     

De novo venture strategy: arch incumbency at inaugural entry

By definition, de novo industry ventures do not share many market‐contact points with incumbents—itself an important source of competitive ‘stability’ through mutual forbearance. As such, these ventures are often subject to aggressive retaliation at the outset, which could threaten their very survival. In this study, the notion of an arch incumbent is developed, hypothesizing that, in general, a large market overlap with an incumbent lowers the survival odds of a de novo entrant. However, a large market overlap with the arch incumbent combined with an aggressive inaugural market entry or a different market positioning reduces the probability of retaliation by the arch incumbent (and subsequently other incumbents as well), and hence increases the probability of survival for a de novo entrant. The empirical experience of de novo ventures in the intra‐European passenger airline industry supports these hypotheses. Copyright © 2009 John Wiley & Sons, Ltd.     

Pricing strategy, quality signaling, and entry deterrence

I investigate a pricing strategy that is aimed at deterring entry by applying a two-period model of a durable-goods monopolist. There exists an incumbent that is of two types, that is, high and low quality types. They differ in terms of their R&D capabilities, and the incumbent's type is assumed to be unknown to an entrant. If the entrant decided to enter the market, Nash–Bertrand price competition ensues between the incumbent and the entrant. I show that not only limit pricing but also prestige pricing signals the incumbent's quality type, which serves to discourage entry. In the prestige pricing, the high-quality type sells the products at an intentionally higher price. I also show that although limit pricing is more desirable than prestige pricing from a social welfare viewpoint, the incumbent can still choose prestige pricing.     

动力煤期货上市对煤炭定价机制和行业竞争的影响研究

使用定性与定量相结合的方法,就动力煤期货上市后的发展预期,包括煤炭市场定价权变化、期现货价格的互动关系,以及动力煤期货上市对煤炭行业的影响进行了分析。     

Performance effects of imitative entry

This article examines how waiting to imitate a product affects the performance of the imitator compared to the innovator. Specifically, we address two research questions. Under what conditions does imitation erode the advantage of the innovator? What strategies of imitators help overcome the innovator's advantage? Our main argument is that the increasing availability of information on the innovator's product increases the imitator's returns to waiting. With this increasing availability of information, imitators' products transition from those that are horizontally differentiated (products are similar in quality but differ in their attributes) to those that are vertically differentiated (products differ in quality). Thus, we hypothesize that shifts in the nature of competition over time from horizontal differentiation to vertical differentiation account for why the innovator's advantage is not preserved. Imitation timing simply reflects the uncertainty inherent in imitation efforts. One such uncertainty is the extent of product differentiation that the imitator can achieve. We develop several hypotheses that elaborate this basic intuition. We obtained detailed data on innovator‐imitator competition in the branded drug industry to test the hypotheses. All our hypotheses are supported. The main contribution of the article is in showing that the nature of product differentiation in product categories is endogenous to the imitative entry decisions of firms. Copyright © 2008 John Wiley & Sons, Ltd.     

Generic and specific social learning mechanisms in foreign entry location choice

We combine economic and institutional theories of clustering in foreign entry location choice in an overarching social learning conceptualization. Prospective entrants learn about the attractiveness of alternative locations by observing the entry choices of previous investors (‘models’). We distinguish two types of learning that differ in observational focus width but can and do operate simultaneously. With assessment learning, firms judge the economic feasibility and agglomeration benefits of entering a location by observing and following a broad set of models. With bandwagon learning, firm‐level uncertainty narrows attention to, and prompts the following of, specific models, with recentness of model behavior an important moderator. We find broad support for our conceptualization in an analysis of the entries of 692 Japanese electronics firms into Chinese provinces during 1979–2001. Copyright © 2011 John Wiley & Sons, Ltd.     

Inherited agglomeration effects in hedge fund spawns

This paper studies inherited agglomeration effects, which we define as human capital that managers acquire while working in an industry hub that may be transferred to a spinoff. We test for inherited agglomeration effects in the hedge fund industry and find that hedge fund managers who previously worked in New York and London outperform their peers by about one percent per year. The results are driven by managers who worked in investment management positions previously, and are at least as large as traditional agglomeration effects that arise from being located in an industry hub contemporaneously. The evidence suggests that inherited agglomeration effects are an important, but as yet overlooked, factor influencing the performance of new firms. Copyright © 2013 John Wiley & Sons, Ltd.     

Multipoint competition,strategic similarity and entry into geographic markets

The objective of this study is to integrate both multimarket contact and strategic similarity in the analysis of entry decisions. We also analyze the role of the reciprocity of contacts, market concentration, and coordination mechanisms at moderating the relationship. Our hypotheses are tested through the analysis of entry behavior into new geographical markets in the Spanish savings bank market. Interestingly, our results offer an opportunity of conciliating conflicting evidence in both the multimarket–mutual forbearance and the heterogeneity–rivalry literatures and offer further support to the U‐inverted influence of multimarket contact on entry. Given the coordination assumption implicit in the theory and the possible presence of unobservable variables, we also offer a method to cope with the common‐actor problem. Copyright © 2006 John Wiley & Sons, Ltd.     

Making sense of overconfidence in market entry

Entrepreneurs are often described as overconfident (or at least very confident), even when entering difficult markets. However, recent laboratory findings suggest that difficult tasks tend to produce underconfidence. How do entrepreneurs maintain confidence in difficult tasks? Our two laboratory experiments and one archival study reconcile the literature by distinguishing types of overconfidence and identifying what type is most prominent in each type of task. Furthermore, we critically examine the notion that ‘overconfidence’ explains excess market entry: we find that entry into different markets is not driven by confidence in one's own absolute skill, but by confidence in one's skill relative to that of others. Finally, we consider whether overconfidence in relative skill is driven by neglecting competitors or by systematic errors made when considering them. Copyright © 2013 John Wiley & Sons, Ltd.     

The relative price discipline of domestic versus foreign entry

In this paper we combine data on industry entry, imports, and producer price indexes for 46 4-digit SIC industries over the 1972 to 1987 period to determine the impact of entry on industry pricing. Domestic entry's restraining influence is weak and occurs only at high levels of concentration while import changes exhibit a procompetitive influence for lower levels of concentration that include nearly all industries in the sample. In addition, the threat of foreign entry plays a role in disciplining domestic pricing; the impact of nontariff barriers on price changes seems to increase with concentration levels.Professors of Economics, The American University and Bryant College, respectively. This paper is a revision of one presented at the 1992 ASSA meetings in New Orleans. We are grateful to the discussants Cindy Alexander and H. E. Frech for their comments, and we also thank Don Alexander, Roger Sherman, and two anonymous referees for their comments on earlier drafts. We alone are responsible for any remaining errors.     

Agglomeration effects and performance: a test of the Texas lodging industry

While competition decreases rents for firms, the presence of competitors may create benefits. Competitors that agglomerate, that are physically proximate, may create externalities—production efficiencies or heightened demand that increases rents. When such externalities exist, then who gains from and who contributes to them? We examine how other competitors' traits affect performance in Texas's lodging industry. In rural markets, we find that chain hotels and larger hotels contribute to positive externalities. While expecting those hotels similar to the establishments creating these externalities to gain, we find the opposite. Independent hotels and smaller hotels gain the most. Interestingly, some establishments are harmed. Copyright © 2001 John Wiley & Sons, Ltd.     

Internal agglomeration and productivity: Evidence from microdata

Research Summary: We study how internal agglomeration—geographic clustering of business establishments owned by the same parent company—influences establishment productivity. Using Census microdata on the population of U.S. hotels from 1987-2007, we find that doubling the intensity of internal agglomeration is associated with a productivity increase of about 2% in pre-existing establishments. We consider several mechanisms that may be driving the productivity effect and find evidence consistent with the idea that an economically meaningful component of the productivity effect is due to knowledge transfer between internally agglomerated establishments. We replicate our main findings with Census microdata on the full population of U.S. restaurants from 1987-2007, suggesting that the internal agglomeration effects we document may generalize broadly to other industries with multi-unit firms. Managerial Summary: Internal agglomeration is the geographic clustering of business establishments owned by the same parent company. This paper uses detailed Census data on hotels and restaurants to show how internal agglomeration influences performance. Interestingly, knowledge sharing between owned establishments in the same metropolitan area appears to be a key driver of the internal agglomeration effect.     

Mode of entry and ex-post performance

In this study I develop and empirically test hypotheses delineating how a set of industry- and firm-level factors are differentially associated with postentry performance of de novo and acquisitive entrants. First, I conceptualize structural entry barriers as sunk costs or irrecoverable investments that entrants must make in the entered industry to be competitive vis-à-vis incumbents. I then argue that de novo and acquisitive entrants differ in three important ways: (1) incremental vs. up-front sunk cost investments in overcoming impediments to entry; (2) increasing productive capacity vs. changing ownership in the entered industry; and (3) low vs. high costs of integration when realizing synergies with parent firms. I use the Trinet, FTC-ALB, and Compustat data bases to construct a sample comprising de novo and acquisitive entries made during the period 1980–82. Next, I evaluate postentry survival and growth between 1982 and 1986. Overall, empirical tests provided partial support for the hypotheses, and the explained variance in my models ranged from 17 percent to 37 percent. © 1998 John Wiley & Sons, Ltd.     

Option value and entry timing

When facing uncertainty, firms entering new markets can make initial foothold investments rather than undertake large sunk investments. Such investments are real call option purchases. They offer management flexibility, but also raise questions about whether and when to increase commitments to new markets. We present an entry timing decision criterion and discuss its application to a variety of market entry situations. Optimal timing for exercising real options depends on current dividends, possibilities for preemption, and whether the option is simple or compound, proprietary or shared. Our analysis reveals critical assumptions and new theoretical insights regarding market entry timing. Copyright © 2002 John Wiley & Sons, Ltd.