Strategic Entry Before Demand Takes Off

In developing industries rms have to decide whether and when to enter the market depending on the state of demand, existing rms in the industry, and the rm's capabilities. This paper investigates a model of increasing demand, in which rms decide when to enter the market anticipating the strategic behavior of other potential entrants, and the e ects of entry on future potential entrants. The paper shows that the ability of early entry to deter future competitors' entry leads rms to enter the market at a rate faster than demand is expanding. If there is the potential for many rms to enter the market, rms may be less likely to enter because of future competitor entry to correct any market opportunities. If rms enter the market depending on their xed capabilities rather than depending on the rm's circumstances at each moment in time, rms end up entering the market at a faster rate in the early periods.