The Impact of Debt Financing on Entry and Exit in a Duopoly

This article investigates the interaction between market entry,company foreclosure, and capital structure in a duopoly. Wefind that the order in which firms foreclose is determined notonly by differences in firm-specific factors, but also by commoneconomic factors, such as the interest rate and the market profitvolatility. We extend the exit model by allowing financiallydistressed firms to renegotiate their debt contracts througha one-off debt exchange offer. We find that firms with highbankruptcy costs or with prospects of profit improvement canget bigger reductions on their debt repayments. Investigatingmarket entry, we find that financial vulnerability of the incumbentinduces earlier entry.     

How do firms make money selling digital goods online?

We review research on revenue models used by online firms who offer digital goods. Such goods are non-rival, have near zero marginal cost of production and distribution, low marginal cost of consumer search, and low transaction costs. Additionally, firms can easily observe and measure consumer behavior. We start by asking what consumers can offer in exchange for digital goods. We suggest that consumers can offer their money, personal information, or time. Firms, in turn, can generate revenue by selling digital content, brokering consumer information, or showing advertising. We discuss the firm’s trade-off in choosing between the different revenue streams, such as offering paid content or free content while relying on advertising revenues. We then turn to specific challenges firms face when choosing a revenue model based on either content, information, or advertising. Additionally, we discuss nascent revenue models that combine different revenue streams such as crowdfunding (content and information) or blogs (information and advertising). We conclude with a discussion of opportunities for future research including implications for firms’ revenue models from the increasing importance of the mobile Internet.