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How does rivals' presence affect firms' decision to enter new markets? economic and sociological explanations

Koçak, Özgecan and Özcan, Serden (2013) How does rivals' presence affect firms' decision to enter new markets? economic and sociological explanations. Management Science . ISSN 0025-1909 (Print) 1526-5501 (Online)

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Official URL: http://dx.doi.org/10.1287/mnsc.2013.1723

Abstract

Four distinct theoretical programs have examined market entry decisions of multiunit firms, advancing different explanations for the relationship between a firm's likelihood of entry into a geographical market and the number of rivals that are already present in the target market. Within the strategy literature, theory of strategic interactions explains that firms will want to establish a foothold in markets where their multimarket competitors are scarce, but avoid markets where there are many multimarket competitors. Within economic geography, positive externalities such as increase in demand explain firms' desire to locate close to their rivals whereas negative externalities such as competition explain their desire to avoid them. Within the ecological tradition, density dependence theory explains this relationship in terms of legitimation of an organizational form in a particular market and subsequently increased competition for resources there. Within new institutional theory, the presence of rivals is seen as a signal that a particular market is suitable for entry. Although generally quoted and mentioned in the literature, these four explanations have not been sufficiently separated to indicate whether these four mechanisms all operate simultaneously or whether one of them might account for the often found inverse-U-shaped relationship. Distinguishing firms with different strategies and using various moderators, we test the four explanations jointly and demonstrate their scope of operation.

Item Type:Article
Subjects:H Social Sciences > HM Sociology > HM0786-806 Organizational sociology. Organization theory
ID Code:21886
Deposited By:Özgecan Koçak
Deposited On:26 Sep 2013 12:49
Last Modified:18 Feb 2014 11:54

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