Big Expansions, Monopoly Markets and the Survival of De Novo Entrants

• Main Author: FAN, Terence Ping Ching
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2009
• Subjects: de novo new entrant; venture growth; survival; demand uncertainty; Entrepreneurial and Small Business Operations
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/1832
• Institution: Singapore Management University

This paper challenges the misconception that high growths automatically enhance the survival of de novo entrants, and cautions managers of de novo new entrants against too aggressive a production increase over a short time frame. Instead of narrowing the gap in production scale with incumbents and galvanizing employees through ambitious target, aggressive expansions in production can subject new entrants to increased survival hazards should demand fall below expectations. Empirical evidence from the intra-European airline industry confirms the significant survival risk incurred by the biggest and most aggressive production expansions. Meanwhile, exploring and continuing production in monopoly markets are shown to significantly reduce the survival odds of de novo new entrants.