The Competitive Dynamics of Entrepreneurial Market Entry

The Competitive Dynamics of Entrepreneurial Market Entry

The Johns Hopkins University series on Entrepreneurship

Edited by Gideon D. Markman and Phillip H. Phan

Research on general market entry usually focuses on large enterprises. Often, however, small entrants can alter the competitive dynamics of an industry. This volume brings together the most prominent thought leaders and the best research on the asymmetric entrant-incumbent dynamics. The ideas presented offer a more nuanced perspective on how, when, where and with what consequences small, single-product firms enter markets that are dominated by large, multiproduct and multimarket incumbents.

Chapter 12: A Retrospective on Desperately Seeking Spillovers?

Barak S. Aharonson, Joel A.C. Baum and Maryann P. Feldman

Subjects: business and management, entrepreneurship, economics and finance, industrial economics


Barak S. Aharonson, Joel A.C. Baum, and Maryann P. Feldman ‘Desperately seeking spillovers?’ (Aharonson et al., 2007) examines the location decisions of Canadian biotechnology startups during the 1990s. It is well established that concentrated regions of inventive activity (e.g., cities, states, countries) attract greater entry of new firms. Our focus, in contrast, is on micro-location patterns of entry within such regions, and the role of potential knowledge spillovers in shaping entrants’ choice of location. Examining entry location decisions within concentrated inventive areas facilitates an understanding of factors that encourage firms to co-locate and the nature of agglomeration benefits sought by entrepreneurial firms. The paper makes two main contributions. The first is demonstrating that location decisions in our empirical setting are very fine-grained. The paper presents evidence that biotechnology startups have a strong preference for close proximity—within 500 meters (m), or roughly one-third of a mile— to inventively active incumbents (indexed by incumbent firms’ number of R&D employees and R&D expenditures) with a similar specialization (e.g., therapeutics, agriculture, aquaculture). Supporting a knowledge spillover-seeking interpretation for this behavior, these proximity effects dissipate rapidly, with incumbents’ inventive activity beyond 500 m having little influence on entrants’ location decisions. Indeed, entrants appear to actively avoid locations more distant from such inventive activity. The second contribution is evidence that two contextual factors influence entrants’ tendency toward spillover-seeking. The first is technological similarity. As already noted, the findings indicate that knowledge spillover-seeking depends on the entrant and incumbents sharing a relatively narrow...

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