This paper is about how firms choose products. Product changes are frequent events at US manufacturing plants. Over two thirds of surviving plants add and/or drop at least one product every five years. We develop a theoretical model that integrates endogenous product choice into a dynamic analysis of industry evolution with entry and exit and heterogeneous firms. In equilibrium, firm productivi...

We extend the well-known spatial competition model (d’Aspremont et al., 1979) to a continuous time model in which two firms compete in each instance. Our focus is on the entry timing decisions of firms and their optimal locations. We demonstrate that the leader has an incentive to locate closer to the centre to delay the follower’s entry, leading to a non-maximum differentiation outcome. We als...

Joint production between rival firms often entails knowledge transfers without direct compensation, leaving the question as to why more efficient firms would give their rivals such an advantage. We find that such transfers are credible mechanisms to make the market more competitive so as to deter entry or force exit. We determine that with free entry such transfers are profitable and further it...

Is free entry desirable for social efficiency? We examine this question in an open economy context under a Cournot setup. Specifically, we consider a ‘home market’ where both home and foreign firms compete simultaneously. While free entry always leads to “excessive entry” in a closed economy setup (Mankiw and Whinston (1987), Suzumura and Kiyono (1986)), we find that free entry can be socially ...

Firm turnover (i.e. firm entry and exit) is a well-recognized source of sectorlevel productivity growth across developing and developed countries. In contrast, the role and importance of firms switching activities from one sector to another is little understood. Firm switchers are likely to be unique both from newly established entrants and exiting firms that close down. We build an empirical m...

China and India are the fastest-growing major markets in the world and the most popular markets for foreign entrants. However, no study has examined the success or failure of these entries. Using a new definition of success and a uniquely compiled archival database, the authors analyze whether and why firms that entered China and India succeeded or failed. The most important findings are rather...

Recent work in the real options approach to investment has argued that firms face significant opportunity costs when entry costs are largely irreversible, and these costs equal the value of an option to defer investment. This study seeks to examine empirically these claims by investigating the interactive effects of uncertainty and irreversibility on the likelihood of entry into new business by...