Skip to main content
SpringerLink
Log in

Empirical studies of entry and exit: A survey of the evidence

  • Published:
Review of Industrial Organization Aims and scope Submit manuscript

Abstract

Over 70 empirical studies of entry and exit patterns covering eleven different countries generally support the expectation that entry is more frequent in more profitable, rapidly growing industries, and slower where the absolute costs of capital required to build a minimum efficient scale plant are imposing. Scale economies, excess capacity, and limit pricing receive little empirical support as entry impediments. The evidence concerning the effects of advertising and R&D intensity is confusing.

Exit is faster where profits are lower, and slower where durable specific (sunk) capital costs are more important. Exit and entry are strongly correlated, probably due to displacement (of incumbents by more efficient entrants) and vacuum effects (in which entrants are enticed by the prospects of selling to uncommitted customers abandoned by a recent exit).

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Acs, Zoltan J. and David B. Audretsch (1990).Innovation and Small Firms. Cambridge, MA: The MIT Press.

    Google Scholar 

  • Acs, Zoltan J. and David B. Audretsch (1989) ‘Small-firm Entry in U.S. Manufacturing’,Economica 56, 255–265.

    Google Scholar 

  • Audretsch, David B. (1991) ‘New Firm Survival and the Technological Regime,’The Review of Economics and Statistics 73, 441–450.

    Google Scholar 

  • Austin, John S. and David I. Rosenbaum (1991) ‘The Determinants of Entry and Exit Rates into U.S. Manufacturing Industries,’The Review of Industrial Organization 5, 211–221.

    Google Scholar 

  • Bain, Joe S. (1956)Barriers to New Competition. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Baldwin, John R. and Paul K. Gorecki (1987). ‘Plant Creation vs. Plant Acquisition: The Entry Process in Canadian Manufacturing,’International Journal of Industrial Organization 5, 27–41.

    Google Scholar 

  • Baldwin, John R. and Paul K. Gorecki (1991) ‘Entry, Exit, and Productivity Growth,’ in P. A. Geroski and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 244–256.

    Google Scholar 

  • Bond, Ronald and David Lean (1977)Sales, Promotion, and Product Differentiation in Two Prescription Drug Markets. Washington, DC: United States Federal Trade Commission.

    Google Scholar 

  • Bunch, David S. and Robert Smiley (1992) ‘Who Deters Entry? Evidence on the Use of Strategic Entry Deterrents,’The Review of Economics and Statistics 74, 509–521.

    Google Scholar 

  • Bradburd, Ralph M. and David R. Ross (1989) ‘Can Small Firms Find and Defend Strategic Niches? A Test of the Porter Hypothesis,’The Review of Economics and Statistics 71, 258–262.

    Google Scholar 

  • Cable, John and Joachim Schwalbach (1991) ‘International Comparisons of Entry and Exit,’ in P. A. Geroski and J. Schwalbach, eds,Entry and market Contestability. Oxford: Basil Blackwell, pp. 257–281.

    Google Scholar 

  • Caves, Richard E. and Michael E. Porter (1976) ‘Barriers to Exit,’ in P. David Qualls and Robert Masson, eds,Essays on Industrial Organization in Honor of Joe S. Bain. Cambridge, MA: Ballinger, pp. 36–69.

    Google Scholar 

  • Caves, Richard E. and Michael E. Porter (1977) ‘From Entry to Mobility Barriers,’Quarterly Journal of Economics 91, 241–261.

    Google Scholar 

  • Chappell, William F., Mwangi S. Kimenyi, and Walter J. Mayer (1990) ‘A Poisson Probability Model of Entry and Market Structure with an Application to U.S. Industries during 1972–77,’Southern Economic Journal 56, 918–927.

    Google Scholar 

  • Chappell, William F., Mwangi S. Kimenyi, and Walter J. Mayer (1992) ‘The Impact of Unionization on the Entry of Firms: Evidence from U.S. Industries,’Journal of Labor Research 13, 273–283.

    Google Scholar 

  • Cotterill, Ronald W. (1986) ‘Market Power in the Retail Food Industry: Evidence from Vermont,’The Review of Economics and Statistics 68, 379–386.

    Google Scholar 

  • Cotterill, Ronald W. and Lawrence E. Haller (1992) ‘Barrier and Queue Effects: A Study of Leading U.S. Supermarket Chain Entry Patterns,’The Journal of Industrial Economics 40, 427–440.

    Google Scholar 

  • Cubbin, John and Simon Domberger (1988) ‘Advertising and Post-Entry Oligopoly Behaviour,’The Journal of Industrial Economics 37, 123–140.

    Google Scholar 

  • Curry, Timothy J. and John T. Rose (1984) ‘Diversification and Barriers to Entry: Some Evidence from Banking,’The Antitrust Bulletin 29, 759–773.

    Google Scholar 

  • Duetsch, Larry L. (1975) ‘Structure, Performance, and the Net Rate of Entry into Manufacturing Industries,’Southern Economic Journal 41, 450–456.

    Google Scholar 

  • Duetsch, Larry L. (1984a) ‘An Examination of Industry Exit Patterns,’The Review of Industrial Organization 1, 60–68.

    Google Scholar 

  • Duetsch, Larry L. (1984b) ‘Entry and the Extent of Multiplant Operations,’The Journal of Industrial Economics 32, 477–488.

    Google Scholar 

  • Dunne, Timothy and Mark J. Roberts (1991) ‘Variation in Producer Turnover Across U.S. Manufacturing Industries,’ in P. A. Geroski and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 187–203.

    Google Scholar 

  • Dunne, Timothy, Mark J. Roberts, and Larry Samuelson (1988) ‘Patterns of Firm Entry and Exit in U.S. Manufacturing Industries,’The Rand Journal of Economics 19, 495–515.

    Google Scholar 

  • Dunne, Timothy, Mark J. Roberts, and Larry Samuelson (1989) ‘Firm Entry and Post-Entry Performance in the U.S. Chemical Industries,’Journal of Law and Economics 32, 233–271.

    Google Scholar 

  • Estrin, Saul and Tea Petrin (1991) ‘Patterns of Entry, Exit, and Merger in Yugoslavia,’ in P. A. Geroski and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 204–221.

    Google Scholar 

  • Gaskins, Darius (1971) ‘Dynamic Limit Pricing: Optimal Pricing Under Threat of Entry,’Journal of Economic Theory 3, 306–322.

    Google Scholar 

  • Geroski, Paul A. (1989a) ‘The Interaction between Domestic and Foreign Based Entrants,’ in David W. Audretsch, Leo Sleuwaegen and Hideki Yamawaki, eds.,The Convergence of International and Domestic Markets. Amsterdam: North Holland.

    Google Scholar 

  • Geroski, Paul A. (1989b) ‘Entry, Innovation, and Productivity Growth,’The Review of Economics and Statistics 71, 572–578.

    Google Scholar 

  • Geroski, Paul A. (1991a)Market Dynamics and Entry. Oxford: Basil Blackwell.

    Google Scholar 

  • Geroski, Paul A. (1991b) ‘Domestic and Foreign Entry in the United Kingdom: 1983–84,’ in P. A. Geroski and J. A. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 63–88.

    Google Scholar 

  • Geroski, Paul A. and Robert T. Masson (1987) ‘Dynamic Market Models in Industrial Organization,’International Journal of Industrial Organization 5, 1–13.

    Google Scholar 

  • Geroski, Paul A., Richard J. Gilbert and Alexis Jacquemin (1990)Barriers to Entry and Strategic Competition. Chur, Switzerland: Harwood Academic Publishers.

    Google Scholar 

  • Gorecki, Paul K. (1975) ‘The Determinants of Entry by New and Diversifying Enterprises in the U.K. Manufacturing Sector 1958–1963: Some Tentative Results,’Applied Economics 7, 139–147.

    Google Scholar 

  • Gorecki, Paul K. (1976) ‘The Determinants of Entry by Domestic and Foreign Enterprises in Canadian Manufacturing Industries: Some Comments and Empirical Results,’The Review of Economics and Statistics 58, 485–488.

    Google Scholar 

  • Gorecki, Paul K. (1986) ‘The Importance of Being First,’International Journal of Industrial Organization 4, 371–395.

    Google Scholar 

  • Hamilton, R. T. (1985) ‘Interindustry Variation in Gross Entry Rates of ‘Independent’ and ‘Dependent’ Businesses,’Applied Economics 17, 271–280.

    Google Scholar 

  • Hannan, Timothy (1979) ‘Limit Pricing and the Banking Industry,’Journal of Money, Credit and Banking 11, 438–446.

    Google Scholar 

  • Hannan, Timothy (1983) ‘Price, Capacity, and the Entry Decision: A Conditional Logit Analysis,’Southern Economic Journal 50, 539–550.

    Google Scholar 

  • Harris, Maury N. (1976) ‘Entry and Barriers to Entry,’The Industrial Organization Review 4, 165–174.

    Google Scholar 

  • Hause, John C. and Gunnar Du Rietz (1984) ‘Entry, Industry Growth and the Microdynamics of Industry Supply,’Journal of Political Economy 92, 733–757.

    Google Scholar 

  • Highfield, Richard and Robert Smiley (1987) ‘New Business Starts and Economic Activity,’International Journal of Industrial Organization 5, 51–66.

    Google Scholar 

  • Hilke, John C. (1984) ‘Excess Capacity and Entry: Some Empirical Evidence,’The Journal of Industrial Economics 33, 233–240.

    Google Scholar 

  • Hirschey, Mark (1981) ‘The Effect of Advertising on Industrial Mobility, 1947–72,’The Journal of Business 54, 329–339.

    Google Scholar 

  • Hudson, John (1990) ‘An Information Based Model of Industrial Exit,’Economics Letters 33, 175–178.

    Google Scholar 

  • Jeong, Kao-Young, and Robert T. Masson (1991) ‘Entry during Explosive Growth: Korea during Take-off,’ in P. A. Geroski, and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 143–167.

    Google Scholar 

  • Joskow, Andrew S., Gregory J. Werden, and Richard L. Johnson (1990) ‘Entry, Exit, and Performance in Airline Markets,’ Economic Analysis Group, U.S. Department of Justice.

  • Kalish, Lionel, Henry J. Cassidy, and Jerry Hartzog (1978) ‘Potential Competition: The Probability of Entry with Mutually Aware Potential Entrants,’Southern Economic Journal 44, 542–555.

    Google Scholar 

  • Karakaya, Fahri, and Michael J. Stahl (1989) ‘Barriers to Entry and Market Entry Decisions in Consumer and Industrial Goods Markets,’Journal of Marketing 53, 80–91.

    Google Scholar 

  • Kessides, Ioannis N. (1986) ‘Advertising, Sunk Costs, and Barriers to Entry,’The Review of Economics and Statistics 68, 84–96.

    Google Scholar 

  • Kessides, Ioannis N. (1990) ‘Toward a Testable Model of Entry: A Study of the U.S. Manufacturing Industries,’Economica 57, 219–238.

    Google Scholar 

  • Kessides, Ioannis N. (1991) ‘Entry and Market Contestability: The Evidence from the United States,’ in P. A. Geroski and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 23–48.

    Google Scholar 

  • Khemani, R. S. and D. M. Shapiro (1986) ‘The Determinants of New Plant Entry in Canada,’Applied Economics 18, 1243–1257.

    Google Scholar 

  • Khemani, R. S. and D. M. Shapiro (1988) ‘On Entry and Mobility Barriers,’The Antitrust Bulletin 33, 115–134.

    Google Scholar 

  • Krattenmaker, Thomas G. and Steven C. Salop (1986) ‘Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power over Price,’Yale Law Journal 96, 209–243.

    Google Scholar 

  • Lieberman, Marvin B. (1987) ‘Excess Capacity as a Barrier to Entry: An Empirical Appraisal,’The Journal of Industrial Economics 35, 607–627.

    Google Scholar 

  • Lieberman, Marvin B. and D. B. Montgomery (1988) ‘First Mover Advantages,’Strategic Management Journal 9, 41–58.

    Google Scholar 

  • Liebowitz, S. J. (1982) ‘Measuring Industry Disequilibrium,’Southern Economic Journal 49, 119–136.

    Google Scholar 

  • MacDonald, James M. (1986) ‘Entry and Exit on the Competitive Fringe,’Southern Economic Journal 52, 640–652.

    Google Scholar 

  • Mann, H. Michael (1966) ‘Seller Concentration, Barriers to Entry, and Rates of Return in 30 Industries, 1950–1960,’The Review of Economics and Statistics 48, 296–307.

    Google Scholar 

  • Masson, Robert T. and Joseph Shaanan (1986) ‘Excess Capacity and Limit Pricing: An Empirical Test,’Economica 53, 365–378.

    Google Scholar 

  • Masson Robert T. and Joseph Shaanan (1982) ‘Stochastic-Dynamic Limit Pricing: An Empirical Test,’The Review of Economics and Statistics 64, 413–422.

    Google Scholar 

  • Mata, José (1991) ‘Sunk Costs and Entry by Small and Large Plants,’ in P. A. Geroski, and J. Schwalbach, eds,Entry and Market Contestability. Cambridge: Blackwell, pp. 49–62.

    Google Scholar 

  • Mata, José (1993) ‘Entry and Type of Entrant: Evidence from Portugal,’International Journal of Industrial Organization 11, 101–122.

    Google Scholar 

  • Mayer, Walter J. and William F. Chappell (1992) ‘Determinants of Entry and Exit: An Application of the Compounded Bivariate Poisson Distribution to U.S. Industries, 1972–77,’Southern Economic Journal 58, 770–778.

    Google Scholar 

  • McGuckin, Robert (1972) ‘Entry, Concentration Change, and Stability of Market Shares,’Southern Economic Journal 38, 363–370.

    Google Scholar 

  • Mørch von der Fehr, Nils-Henrik (1991) ‘Domestic Entry in Norwegian Manufacturing Industries,’ in P. A. Geroski and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 89–110.

    Google Scholar 

  • Orr, Dale (1974a) ‘The Determinants of Entry: A Study of the Canadian Manufacturing Industries,’The Review of Economics and Statistics 56, 58–65.

    Google Scholar 

  • Orr, Dale (1974b) ‘The Economic Determinants of Entry into Canadian Banking: 1963–7,’The Canadian Journal of Economics 7, 82–99.

    Google Scholar 

  • Porter, Michael W. (1980)Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: The Free Press.

    Google Scholar 

  • Rizzo, John A. and Richard J. Zeckhauser (1990) ‘Advertising and Entry: The Case of Physician Services,’Journal of Political Economy 98, 476–500.

    Google Scholar 

  • Rosenbaum, David I. (1993) ‘Profit, Entry and Changes in Concentration,’International Journal of Industrial Organization 11, 185–203.

    Google Scholar 

  • Rosenbaum, David I. and Fabian Lamort (1992) ‘Entry, Barriers, Exit, and Sunk Costs: An Analysis,’Applied Economics 24, 297–304.

    Google Scholar 

  • Schwalbach, Joachim (1987) ‘Entry by Diversified Firms into German Industries,’International Journal of Industrial Organization 5, 43–49.

    Google Scholar 

  • Schwalbach, Joachim (1991) ‘Entry, Exit, Concentration, and Market Contestability,’ in P. A. Geroski and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 121–142.

    Google Scholar 

  • Shaanan, Joseph (1988) ‘Welfare and Barriers to Entry: An Empirical Study,’Southern Economic Journal 54, 746–762.

    Google Scholar 

  • Shapiro, Daniel M. (1983) ‘Entry, Exit, and the Theory of the Multinational Corporation,’ in D. Audretsch and C. Kindleberger, eds,The Multinational Corporation in the 1980s. Cambridge, MA: M.I.T. Press.

    Google Scholar 

  • Shapiro, Daniel and R. S. Khemani (1987) ‘The Determinants of Entry and Exit Reconsidered,’International Journal of Industrial Organization 5, 15–26.

    Google Scholar 

  • Siegfried, John J. and Laurie Beth Evans (1992) ‘Entry and Exit in United States Manufacturing Industries from 1977 to 1982,’ in David W. Audretsch and John J. Siegfried, eds,Empirical Studies in Industrial Organization: Essays in Honor of Leonard W. Weiss. Dordrecht: Kluwer Academic Publishers.

    Google Scholar 

  • Sleuwaegen, Leo and Wim Dehandschutter (1991) ‘Entry and Exit Exit in Belgian Manufacturing,’ in P. A. Geroski and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 111–142.

    Google Scholar 

  • Smiley, Robert (1988) ‘Empirical Evidence on Strategic Entry Deterrence,’International Journal of Industrial Organization 6, 167–180.

    Google Scholar 

  • Stigler, George (1968) “Barriers to Entry, Economies of Scale, and Firm Size,’The Organization of Industry. Homewood, IL: Richard D. Irwin.

    Google Scholar 

  • Stonebraker, Robert J. (1976) ‘Corporate Profits and the Risk of Entry,’The Review of Economics and Statistics 58, 33–39.

    Google Scholar 

  • Urban, Glen L., Theresa Carter, Steven Gaskin, and Zofia Mucha (1986) ‘Market Share Rewards to Pioneering Brands: An Empirical Analysis and Strategic Implications,’Management Science 32, 645–659.

    Google Scholar 

  • Van Herck, Gustaaf (1984) ‘Entry, Exit, and Profitability,’Managerial and Decision Economics 5, 25–31.

    Google Scholar 

  • Yamawaki, Hideki (1991) ‘The Effects of Business Conditions on Net Entry: Evidence from Japan,’ in P. A. Geroski and J. Schwalbach, eds,Entry and Market Contestability. Oxford: Basil Blackwell, pp. 168–186.

    Google Scholar 

  • Yip, George (1982)Barriers to Entry: A Corporate Strategy Perspective. Lexington, MA: D. C. Heath.

    Google Scholar 

  • Yu, Shirley S. (1984) ‘Some Determinants of Entry into Therapeutic Drug Markets,’The Review of Industrial Organization 1, 260–275.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, Vanderbilt University, 37235, Nashville, TN, USA

    John J. Siegfried

  2. University of Chicago Law School, 60637, Chicago, IL, USA

    Laurie Beth Evans

Authors
  1. John J. Siegfried
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Laurie Beth Evans
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

The authors thank Ronald Cotterill, William Comanor, Larry Duetsch, Geoffrey Shepherd, and an anonymous referee for comments on an earlier draft of this article. Much of the work on this survey was done while Siegfried was a Visiting Professor at the University of Adelaide, South Australia.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Siegfried, J.J., Evans, L.B. Empirical studies of entry and exit: A survey of the evidence. Rev Ind Organ 9, 121–155 (1994). https://doi.org/10.1007/BF01035654

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF01035654

Key words

Search

Navigation