Market Entry Costs Research Articles

Dynamics in the heritability of leadership role occupancy: Evidence from a three-wave twin sample

Studies show that genetics matter in who becomes a leader. However, we know little about the dynamic properties of the heritability of leadership emergence or how genetics might interact with environmental conditions to shape leadership emergence. We track leadership role occupancy at three time points among a cohort of 1,079 Danish twin pairs over ten years. Our results suggest that genetics matter less when the cohort is young and increase over time as the cohort grows older. We argue that labor market entry costs coupled with free access to education constrain the effect of genetics in the cohort during early adulthood, suggesting differing effects of the environment on genetic expression as the cohort ages. Sorting based on individual predisposition towards leadership likely strengthens as the cohort grows older and gains labor market experience. This result implies that we should not view the effect of genes on leadership role occupancy as static and that environmental experiences could disproportionately affect critical early leadership advancement. Our study reinforces calls to consider dynamic properties such as gene x environment interactions to advance our broader understanding of leadership’s biology.

Informality and aggregate productivity: The case of Mexico

This paper develops and estimates a quantitative model to analyze the aggregate productivity consequences of informality in Mexico. While informality is typically viewed as prevailing solely among small firms, we use rich census data to document a high and rising share of large informal firms between 1998 and 2013. The model is quantified using the observed size and productivity distributions of both informal and formal firms. We use the model to assess the role of changes in labor market regulations, entry costs and enforcement in contributing to the rise in informality and decline in TFP in Mexico from 1998 to 2013. We find that the factors most important for the decline in aggregate productivity were not important drivers of the increase in informality, and conversely, the factors most important for the increase in informality had little impact on aggregate productivity. Regulatory changes during the 2000s contributed to over a third of the observed rise in the informal employment share, but with small aggregate productivity consequences. In contrast, rising entry costs account for a third of the decline in TFP from 1998 to 2013, but had little impact on informality.

The role of rural cooperatives in the development of rural household photovoltaics: An evolutionary game study

Promoting photovoltaics (PV) in rural households is a crucial step towards green development and rural revitalization. The current practice negatively affects the profit margins of rural households, creating a challenge in balancing efficiency and equity. This paper utilizes evolutionary game theory to construct a bipartite evolutionary game model involving enterprise and rural households, and a tripartite model involving enterprise, rural households, and rural PV cooperatives. We then investigate the strategic behavior and choices of stakeholders and examine the evolutionary trajectory of the system under different parameters based on numerical simulations. Results show that the rural PV cooperatives can increase the strategic choices of enterprises by reducing their market entry costs. The rural PV cooperatives also increase the expected profits of enterprises, rural households, and total social welfare. Our findings suggest that rural PV cooperatives may encourage the adoption of rural household PV and provide insights to balance efficiency and equity.

Firms’ entry choices across export products and markets, and the consequences of trade in an open economy: Evidence from China

We outline a model of endogenous choices of market entry and product scope in a partial-equilibrium model of heterogeneous firms with arbitrary productivity. Firms’ choices of interest depend on market characteristics including variable trade and fixed market-entry costs. Conditional on fixed costs, the extent to which firms respond to shocks depends on their (potentially nonparametric) density around the zero-profit threshold. Accordingly, identical changes in, e.g., variable trade costs per product and market can lead to vastly different responses across not only markets and products but also firms. We shed light on the heterogeneity of these responses by estimating parameters and otherwise calibrating the model to firm-and-product-level bilateral trade data for China.

Planning, discretion and the legacy of onshore wind

AbstractThis paper evaluates the wide discretion afforded to planning decision-makers in England. It does so in respect of a key but often overlooked question in the transition to renewables: whether developers/owners of onshore wind projects should be required to provide a ‘bond’ to ensure decommissioning and site restoration (DSR) occurs. Bonds are financial instruments that evidence ability to fund DSR. They help avoid legacy issues (eg project abandonment) but carry a long-term cost burden for developers/owners. A study of 275 projects elicits three issues. First, a lack of government guidance on bonding, vague ‘threshold’ terms in law and policy and failure of planning decision-makers to consider how others had decided the question result in a lack of markers to inform discretion, with bonds being rare (present in only 15.6% of projects) and their stringency inconsistent. Secondly, this lack of markers legitimises risky, cost-saving practices prohibited in offshore wind, where government guidance informs bonding decisions. Thirdly, reasons for decisions are weak or absent, inhibiting achievement of the justifications for their provision in an administrative context (eg disciplining decision-making). Whilst discretion enhanced capacity to generate electricity from wind through enabling a reduction of market entry costs, assisting movement towards renewable energy targets, it resulted in abandonment risk being ignored. This mirrors strategies adopted elsewhere in England's energy sector, such as coal and oil and gas, where a ‘light touch’ approach to bonding has, traditionally, been deployed to avoid hindering project development.

Analyzing financing and encroachment strategies for a capital-constrained contract manufacturer

This paper investigates a two-echelon supply chain, in which an original equipment manufacturer (OEM) outsources the production to a capital-constrained contract manufacturer (CM) who may choose to create independent brand to encroach on the market. To ease the financial burden, the CM has two sources of financing, bank loans (i.e., borrowing money from financial institutions) and OEM equity financing (i.e., raising capital through selling shares to the OEM). Considering the interrelationship between the two supply chain members, we comparatively examine the financing strategy and encroachment decision of CM. Our analytical results show that the OEM always offers equity financing when no encroachment is involved; but with the presence of encroachment, this type of financing only occurs when the OEM’s shareholding ratio and the CM’s initial capital are fairly large. From the CM’s perspective, the OEM equity financing is always chosen if the capital gap is relatively large, independent of encroachment. Thus, the two parties can achieve a win-win situation at a moderate initial capital level. For the entire supply chain, the OEM equity financing is optimal with encroachment only when the OEM’s shareholding ratio or bank loan interest rate is relatively large Moreover, the capital-sufficient CM benefits from encroachment at low market-entry costs, while the encroachment strategy of the capital-constrained CM is akin to the financing cost. The numerical examination of portfolio financing shows that the OEM benefits from encroachment at high shareholding and equity financing ratios, whereas the CM favors portfolio financing at a medium OEM’s shareholding ratio.

Internet penetration and multi‐product exporters: Firm‐level evidence from China

AbstractThis study explores the impact of Internet penetration on the firm‐product‐level behaviour of multi‐product exporters. While a substantial body of literature has explored the effect of the Internet on firm performance, especially extensive and intensive margins, few studies examine the product‐level behaviour within firms. Using highly disaggregated firm‐product‐level data covering Chinese manufacturing industrial firms from 2000 to 2007, we provide evidence on the effects of the Internet on product mix and product switching within firms. Specifically, because of the reduction in export market entry costs, the Internet can encourage more firms to enter the export market and increase market competition, which causes multi‐product exporters to skew exports towards best‐performing products and drop the products furthest away from its core competence. Meanwhile, the Internet can increase multi‐exporters' productivity and encourage firms to introduce new products, which are also further away from the core product. Productivity and competition cause multi‐product exporters to exhibit product switching, which results in the expansion of product scope.

Competitive Position of Vietnamese Regions: Analysis of Results of Provincial Competitiveness Index

The existence of certain conditions and elements that creates a region’s investment attractiveness is seen to be a challenging and complicated process which leads to a competitive position in respect to other regions in comparison with other ones. The study includes the analysis of the region’s economic and investment situation, and the comparison of provincial competitiveness indexes (PCI) in Vietnam from 2017 to 2021. It should supplement the methodology for regional competitiveness assessment at the involvement and business support. This allows choosing a leading region characterized by a stable and relatively high competitive position compared to the rest of the regions (like Red River Delta region). This clear spatial disparity in regional competitiveness in Vietnam may result from longterm social and economic processes (such as economic growth and investment attraction), and quality of the business environment that depends on the authorities’ ability to work (by means of PCI ranking promotion). As for the second case, the directions of strengthening the competitive position of Vietnam’s regions are expecte to be dynamics in innovation, and persistence in executing institutional reforms in “tougher” areas such as market entry costs, policy bias, transparency, time costs and labor training. The key directions for competitiveness improvement and investment attraction promotion in the short and medium term are as follows: 1) promotion of reforms and transparency of information on administrative procedures for the enterprise; 2) cost reduction of professional training and business satisfaction growth with labor quality; 3) communication strengthening and cooperation between public and private sectors; 4) operating methods renewal of the administrative system in accordance with the process of digital technology application in government management.

Effects of Financial Soundness on Export Activities: Evidence from Firm-Level Data of Korea

ABSTRACT We examine effects of financial soundness on various export activities of manufacturing firms in South Korea. The main results are as follows. First, the export-starters prepared to have a better financial soundness a few years before becoming export-starter. Second, the better financial soundness at a given year increases a probability for a firm to become a new exporter at the following year. Third, the better financial soundness is related to covering export market entry costs rather than export continuation costs. Our findings imply that the financial soundness plays a self-selection role in increasing numbers of export firms in manufacturing sectors.

How Do MNEs and Domestic Firms Respond Locally to a Global Demand Shock? Evidence from a Pandemic

Global shocks bring unanticipated changes in the business environment of foreign multinational enterprises (MNEs) and rival domestic firms. We examine whether there is a difference between how MNEs and domestic firms react in heterogeneous local or subnational markets to a global demand shock. Leveraging the 2009–2010 H1N1 influenza pandemic as a source of exogenous variation in global demand for influenza vaccines, we investigate the role of subnational heterogeneity in economic resources, industry infrastructure, and political alignment within an emerging economy on the behavior of incumbent MNEs and rival domestic firms. We find that following the pandemic, MNE market share in the influenza vaccine market relative to the noninfluenza vaccine markets declines more in regions with lower government health spending per capita and also, in regions unaligned with the federal government. Additional analyses suggest that these changes in market share are not caused by a reduction in MNE revenues. Rather, they are caused by domestic firms that were already present in noninfluenza vaccine markets diversifying by entering the highly related influenza vaccine market. Finally, a granular examination of the differential responses reveals that such responses are not related to preshock differences in regional coverage of MNEs and domestic firms. This study contributes to the extant literature by suggesting that the direct costs or opportunity costs of new market and region entry are relatively greater for MNEs than for domestic firms, particularly in regions that have inadequate health infrastructure and are politically not aligned. This paper was accepted by Joshua Gans, business strategy. Funding: The authors acknowledge funding support from the National University of Singapore [Start-up Research Grant R-313-000-143-133]; the University of Minnesota [Summer Research Grant]; the Industrial Credit and Investment Corporation of India Bank Chair at Indian Institute of Management Ahmedabad; and the Campbell and Teller National Fellow Program at Hoover Institution, Stanford University. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.4313 .

A structural quantitative analysis of services trade de-liberalization

We propose a quantifiable multi-country-multi-sector model of trade in goods and services where markets are not fully penetrated by firms and trade is impeded by standard iceberg costs as well as market-entry costs. Using transaction-type information of German services traders, we inform the model about key behavioral parameters governing the activity of services producers. We calibrate market-entry costs by sector and market, and decompose these into observable and unobservable components. We then study the effects of de-liberalizing services trade. Overall costs on seller-to-customer-market transactions in services are reduced substantially by preferential market access for services through trade agreements. If all countries abandoned existing preferential market access to services, this would reduce their real consumption by up to 6.7% with a similar decline in real wages and dividends (depending on the country). For most economies, depending on their input-output structure, de-liberalizing preferential services-market access has adverse spillover effects on manufacturing.

Market size, entry costs and free entry Cournot equilibrium

Market size, entry costs and free entry Cournot equilibrium

The competitive effects of declining entry costs over time: Evidence from the static random access memory market

We focus on the estimation of market entry costs that are declining over time and evaluate their impact on competition and market performance. We employ a dynamic oligopoly model in which firms make entry, exit, and production decisions in the presence of declining entry costs and learning by doing effects. Focusing on the static random access memory industry, we show that entry costs decline drastically by approximately 2 percent or $40 million per quarter. We conduct a simulation exercise in which a social planner can protect an incumbent from subsequent entrants for different lengths of time. Based on declining entry costs over time, our results show that entry regulation can increase producer and total surplus since regulation can prevent firms from entering too early at overly high entry costs. If own learning and spillover learning are eliminated, total welfare gains are realized already for short lengths of entry protection. We also show that tax (subsidy) policies of entry costs have positive (negative) effects on total surplus while reducing (improving) consumer welfare. Finally, once we assume constant entry costs over time, we find that entry regulation reduces consumer, producer, and total welfare.

The Extensive Margin of Exporting Products: A Firm-Level Analysis

To quantify trade frictions, we examine multiproduct exporters. We build a flexible general-equilibrium model and estimate market entry costs using Brazilian firm-product-destination data under rich demand and market access cost shocks. Our estimates show that additional products farther from a firm’s core competency come at higher production costs, but there are substantive economies of scope in market access costs. Market access costs differ across destinations, falling more rapidly in scope at nearby regions and at destinations with fewer nontariff barriers. We evaluate a counterfactual scenario that harmonizes market access costs across destinations and find global welfare gains similar to eliminating all current tariffs. (JEL D22, F12, F13, F14, O14, O19)

Optimal regulatory policies for charging of electric vehicles

Electric vehicles (EVs) and their associated charging stations are characterized by indirect network effects. In this paper we propose a theoretical model covering both the entry of charging stations and the sales of EVs. The model is used to study policies for developing an adequate charging network for existing and future EV owners. First, we find that governments should subsidize both the variable charging costs at each station and the costs of market entry for charging stations. The charging subsidy should ensure marginal cost pricing on charging, while the entry costs subsidy internalizes the indirect network externality. Second, we also find that the ongoing transition to one charging standard in Europe will unambiguously mean higher market shares for EVs and higher welfare for EV owners.

Economic Regulation Oriented to the sharing economy: An approach from target 10.3 of the 2030 agenda

This work is focused on target 10.3 of the 2030 Agenda, which seeks to “Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies, and practices and promoting appropriate legislation, policies and action in this regard”. To analyze the economic implications of this target, this study focuses on the Sharing Economy, and in public passenger transport industries. As target 10.3 is associated with regulation, it is considered that the theory of neo-institutional economics is valid and appropriate for the identification of economic concepts for regulation. Consequently, the analysis of the chosen documents was developed from the four main concepts of the neo-institutional economy: institutions, property rights, transaction costs, and contracts. As a result, a conceptual model was obtained in which the institutional environment is regulated by 1) property rights, which affect the flow and distribution of the benefits of those who make up the industry; 2) transaction costs, represented in tax payment and different market entry costs such as licenses, fees, certificates, quotas, among others; and 3) contracts, related to the nature of the traded assets, so it will be necessary to establish the substitution level of the services offered (perfect substitutes, imperfect substitutes) and the control of user-provider interactions. From the conceptual model, a series of propositions are derived and validated through a case study, which identifies the gaps between theory and practice to provide regulatory alternatives for governments. Future work should be oriented towards validating the specific relations derived from the conceptual model obtained in this study.

The international business incubator as an entry mode – a systematic literaturę review

Background: Entry mode choice is a topic that has interested academic researchers for decades. Entry modes have been frequently conceptualized along a continuum from the export, through various forms of contractual and equity-based cooperation with partners in foreign markets, to wholly-owned subsidiaries. However, the barriers and challenges related to entering foreign markets remain significant for newcomers. A new phenomenon, namely the “international business incubator” (IBI), which is aimed at facilitating an enterprise’s entry into a foreign market, has recently emerged and been described in the literature as a new entry mode.
 Research purpose: The purpose of this paper is to investigate the existing knowledge in the lit-erature relating to the IBI as a method of foreign market entry.
 Methods: A systematic literature review using a keyword search in various academic databases was employed with the aim of answering the research questions proposed.
 Conclusions: The findings indicate that although the IBI phenomenon has become more wide­spread, the literature on this topic is very limited at present. The findings also reveal that improved risk/control trade-off, lower market entry costs, enhanced knowledge, network relationship, trust, institutional aspects, and strategic resource commitment are the main characteristics that give IBI advantages over other entry modes. Based on the findings of the existing body of knowledge, the pa­per provides recommendations for future research, which can contribute to the literature on the IBI.

Consumer Status Signaling, Wealth Inequality and Non-deceptive Counterfeits

Consumers often enjoy displaying luxury consumption to signal their private wealth status. The emergence of social media has fueled such desire for status signaling. Meanwhile, the rising of e-commerce has made it easy for consumers to search and purchase cheap non-deceptive counterfeits to send a ``fake'' status signal, posing a serious problem to the luxury (status product) industry. Motivated by these industry dynamics, we consider a market entry deterrence game between an incumbent status product firm (the firm) and a non-deceptive counterfeiter (the counterfeiter) who attempts to enter the market. A unique feature of our model is that the market demand is endogenously determined by a consumer status signaling subgame. We investigate the interaction among consumer status signaling, wealth inequality, and equilibrium market outcomes, as well as the implications of anti-counterfeit measures aimed at increasing the counterfeiter market entry cost. Our analysis yields three main insights. First, we show that without counterfeits, the firm is strictly better off from the heightened motive of consumer status signaling; however, such benefit would be neutralized by the potential counterfeiter entry. Second, we find that the presence of counterfeits lowers the firm's profit, but may induce the firm to raise its price. It may also increase social welfare, despite enabling a fake status signal. Third, we demonstrate that increasing the counterfeiter market entry cost may not completely eliminate counterfeiting insofar as the consumer status signaling motive and wealth inequality are high, in which case the firm would settle for strategic coexistence with the counterfeiter.

Optimal portfolio choice with stock market entry costs and human capital investments: A developing country model

This study estimates that stock market entry costs of around 31–35% of income can explain the observed level of non-participation in developing countries. Employing a two-generation, multi-period model with income risk, borrowing constraints and flexible human capital investment options in the offspring, the study numerically computes the possible improvements in consumption and human capital if households participate in the financial markets. The study extends the portfolio choice literature by endogenizing human capital investments and compares the optimal portfolio choice graph of a parent with that of a single worker. Results show that a parent’s portfolio should contain more bonds when educational investments are inflexible and more stocks when they are flexible. Lower asset levels of a parent also tend to increase stock holding percentage.

Exports, Investment and Productivity Growth in Small Firms: A Firm-level Analysis from Tanzania and Ghana

This paper examines the effect of firm-level investment in capital on export entry and productivity growth among different firm size classes using matching and difference-in-differences techniques. We find that firm-level investment in capital reduces the burden of sunk costs of export market entry, thereby inducing small firms to enter export markets with ease and increase their productivity as a result of export market participation. New entrants who survive their first year of exporting also grow their investment levels to consolidate market share. We show that micro and small firms that initiate exporting are more likely to implement firm-level investment as well, one way of technology upgrading, to remain competitive in export markets. Moreover, firm-level investment helps small exporters to generate higher productivity once they engage in export markets. This may suggest that the observed market selection and growth of small firms could be the outcome of distinctive productivity improvements in these firms. We note that investing in capital, especially plant and equipment, may help micro and small firms improve their productive capacity to produce more output at lower unit costs as a result of low-marginal costs of production. Export-led growth policies should be directed at supporting micro and small firms access the much needed financing to upgrade their production processes and improve their productivity.