Jay Johnson

It is seldom possible to plausibly define and observe a pool of potential entrants to a market. This study overcomes that limitation by taking advantage of an opportunity to reasonably define the potential entrants into MTBE production, a rapidly growing environmental product from the mid-1980’s to mid-1990’s. Potential entrants are identified as those firms having access to specific assets that could provide them necessary raw materials for MTBE manufacturing. Once the potential entrant firms are identified, specific information is collected about each firm’s financial performance and other relevant forms of experience and technology that they may possess related to the new product market. A specific framework is developed to organize the variables collected in the unique dataset into important categories of information about the firms. The categories relate to firm efficiency, size, and innovativeness and measures of specific firm experience and technology including environmental performance because of the nature of the product involved. Two estimation methods are used to model these categories in order to test their significance on the probability of entry and the timing of entry. Estimation results show that productivity and relevant experience as opposed to firm size and innovativeness are the primary characteristics differentiating entrants from nonentrants in the MTBE market. Entrants are also more likely to possess specific experience, which seems to better condition them for entry than other types of firms in the potential entrant pool. One particular factor significant to entry is a firm’s environmental performance. Environmental releases are associated with the order of entry.