Suppose a firm can enter one of several markets. Other things equal, the fewer competitors there are, the greater is the incentive to enter as profits are decreasing in the number of competitors. So, smart managers should enter markets with fewer competitors. The deregulation of local telecommunications services in 1996 led to entry by competitive local exchange carriers (CLECs). These varied in the experience and education of senior managers and hence allow a descriptive and analytic analysis of entry decisions. Goldfarb and Xiao perform this analysis and find
Our descriptive analysis, which characterizes the entry decisions of facilities based CLECs in 234 midsize US markets with populations between 100,000 and 1,000,000 as of
the 2000 Census, reveals that experienced CEOs, CEOs with an economics or business
education, and CEOs who attended the most selective undergraduate institutions tended to enter
markets with fewer competitors.
They also estimate a behavioral model of entry to try to identify strategic sophistication as defined by the Cognitive Hierarchy model of Camerer, Crawford etc. They find that the firms with strategically sophisticated managers are more likely to survive and be profitable. There are many things that one might ague with - e.g. Doesn't better (economics/business) education help you to motivate workers better, cut costs etc? Why is strategic sophistication identified only with competition avoidance? Many questions come to mind but this is still an interesting paper.
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September 8, 2011 at 7:37 am
Carol
This is my second year of studying MBA. I feel some slight change when Im thinking. At least I know how to look the whole picture now.
September 8, 2011 at 9:31 am
Anonymous
It seems to me the insight here, not much of an insight actually, is that markets with limited competition offer profits. Sorry to be thick.
September 11, 2011 at 3:39 pm
Robert Craven (@Robert_Craven)
Take a look at
http://www.robert-craven.com/article-the-MBA-is-the-devils-work-SYB.php
The MBA can destroy your ability to set up and run your own business. Smart-assed, newly qualified, MBA graduates think that their piece of paper qualifies them to be a freelance consultant or to run their own business. Absolute nonsense.
Running a business is about action, it is not about theory – what is great in the classroom (because it is intellectually attractive or academically rigorous) is probably irrelevant in the real world…
September 14, 2011 at 9:44 am
David
I like the bit where you basically quote Kotler then demand that we throw him away ….