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.