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Why Do Established Firms Enter Some Industries and Exit Others? Empirical Evidence on Italian Business Groups

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Abstract

In this paper the determinants of entry and exitdecisions are analysed empirically on a sample of wellestablished business groups operating in Italianmanufacturing. The focus is on the role of sunk costsas entry barriers. Two competing hypotheses aretested. On the one hand, setup costs, R & D andadvertising outlays act as barriers to entry for bothnew and already established firms because of theirindustry-specific commitment value. On the other hand,they may induce established firms, which operate insimilar industries, to enter. This is the case if R & Dand advertising are firm-specific investments whichgenerate externalities to be efficiently exploited inadjacent industries. Overall results suggest that thesecond hypothesis gives a better picture of thebehaviour of our sample of firms.

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Authors and Affiliations

  1. University of Turin, Italy

    Alessandro Sembenelli & Davide Vannoni

  2. CERIS-CNR, Italy

    Alessandro Sembenelli & Davide Vannoni

Authors
  1. Alessandro Sembenelli
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  2. Davide Vannoni
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Sembenelli, A., Vannoni, D. Why Do Established Firms Enter Some Industries and Exit Others? Empirical Evidence on Italian Business Groups. Review of Industrial Organization 17, 441–456 (2000). https://doi.org/10.1023/A:1007825831547

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  • DOI: https://doi.org/10.1023/A:1007825831547

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