An Integrative Model of Firms’ Entry Decisions

The paper presents a tractable empirical entry model that integrates strategic considerations and firms’ heterogeneity. Individual entry decisions are derived from a profit function and are specified as the outcome of a discrete game among potential entrants. Using data from a set of Portuguese manufacturing industries over a 6-years period, the estimation of the reduced form of the entry model is based on panel count data models, rendering a novel departure from previous works. The results suggest that both incumbents’ behaviour towards entry and firm-specific characteristics provide additional and interesting insights in understanding entry. Specifically, entrants choose the structure of their labour force as an important firm-specific resource. We also find that industry structure matters greatly.