ABSTRACT
The importance of market entry for competition and innovation is largely undisputed in the field of industrial organization for two reasons. On the one hand, entry plays a crucial role as an equilibrium force in that it competes away excess profits to an equilibrium level. Such imitative entry occurs when the entrant can reap profits by copying the established firms product or method of production. On the other hand, entry also plays a creative role in markets, serving as a vehicle for the introduction and diffusion of innovations. Such innovative entry occurs when the entrant either finds new ways to saturate a certain customer’s need or is able to produce a given product with less input. Innovative entry is seen as a disequilibrium force which propels the industry from one equilibrium state to another (see Geroski, 1991, 1995).
