Three essays on the role of knowledge as a driver of entry and industry dynamics

This dissertation addresses the question of how the knowledge characteristics of firms and industries affect firm entry. Firm entry is considered an important aspect of any analysis in industrial economics or management, due to its direct implications on market structure and competition. Knowledge, in particular, is found to be a prominent driver of firm entry, and is important in explaining the differences across entrants in various industries. Moreover, the identification of the mechanism behind the differences in entry patterns can greatly increase our understanding of how industries evolve in the long run. This requires, however, a thorough examination of the interplay between the knowledge of potential entrants and the knowledge in industries. All these themes are at the base of this dissertation, and are addressed across three chapters from different perspectives. The first chapter, titled “The technological regimes and barriers to entry”, focuses on how industries’ knowledge characteristics, described by their technological regimes, affect the entry of firms, each of which may react differently. The results show that there are significant interaction effects between the different elements of the technological regime. In addition, certain types of entrants seem be affected by the technological regime in significantly different ways, especially diversifiers that are innovative and are from related industries. The second chapter, titled “Where do firms come from? Knowledge relatedness and firm entry”, looks at how the individual potential entrants, which may be diversifiers, spinoffs, or spinouts, make their decision to enter an industry based on how related their knowledge is to the knowledge of the target industry. The results suggest that the relationship takes an inverted U shape for spinouts. For diversifiers and spinoffs, the relationship is U-shaped instead, suggesting that the two effects identified in the theoretical framework vary in strength depending on the types of entrants. The third chapter, titled “Who enters and when? Knowledge relatedness, entrant heterogeneity, and industry characteristics”, expands this perspective to include how the industry-level moderators may alter the relationship between knowledge relatedness and entry for different types of entrants. The results of this paper show that industry characteristics matter in moderating the relationship between knowledge relatedness and entry, but some are more relevant than others. Modularity and innovators concentration, in particular, seem to significantly affect the relationship. By looking at the question with these different perspectives, the studies in the dissertation show that knowledge characteristics of both firms and industries have major impacts on entry, and by extension on market structure.