A Gap for Me: Entrepreneurs and Entry

Volker Nocke

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We present a theory of entrepreneurial entry and exit decisions. Knowing their own managerial talent, entrepreneurs decide which market to enter, where markets differ in size. We obtain a striking sorting result: each entrant in a large market is more efficient than any entrepreneur in a smaller market since competition is endogenously more intense in larger markets. This result continues to hold when entrepreneurs can export their output to other markets, thereby incurring a unit transport cost or tariff. The sorting and price competition effects imply that the number of entrants (and hence product variety) may actually be smaller in larger markets. In the stochastic dynamic extension of the model, we show that the churning rate of entrepreneurs is higher in larger markets.

Keywords: entrepreneurship; entry; exit; firm turnover; industry dynamics (search for similar items in EconPapers)
JEL-codes: L11 L13 M13 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2003-06-30, Revised 2005-09-29
New Economics Papers: this item is included in nep-com, nep-ent and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: A Gap for Me: Entrepreneurs and Entry (2006)
Working Paper: A Gap for Me: Entrepreneurs and Entry (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:05-026

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