The determinants of entry: An analysis of entrants and non-entrants into the market for MTBE

The determinants of entry: An analysis of entrants and non-entrants into the market for MTBE

This study examines entry of firms into the production of methyl tertiary -butyl ether (MTBE), a rapidly growing environmental chemical product. This research is unique in its ability to identify almost entirely the set of potential entrant firms to this market. Most studies of entry into new markets are limited to examining similarities and patterns among entrants or the entry, growth and survival of particular types of entrants. Seldom is it possible to plausibly define a complete pool of potential entrants. The difficulty of identifying all of the potential entrants into a market limits the study of entry and restricts forming stronger conclusions about the entry process. One simply cannot observe how a market’s entrants are different from the firms that did not enter. In the market for MTBE, potential entrants are identified as those firms having access to specific assets that could provide them capabilities and necessary raw materials for the product’s manufacture. Firm-specific information is gathered for each firm for each year from 1987 to 1997 and includes financial performance, and relevant forms of experience, innovation, environmental performance, and technology. Two estimation techniques are used. First, simple logit models estimate the probability of a firm’s entry at any time during the entire period. Second, hazard models are analyzed to examine the timing of entry for each of the 11 years. The estimation results indicate that entrants into the production of MTBE are indeed different from nonentrants. Entrants are more likely to be the most productive firms among all potential entrants and not simply the largest or the most innovative. Entrants are also more likely to possess specific experience, which seems to condition them for entry better than other types of firms in the potential entrant pool. One particular factor significant to entry is a firm’s environmental performance. Firms that have fewer environmental releases of toxic compounds and that treat more toxic pollutants at other facilities are more likely to be entrants into the MTBE market. These factors not only increase the likelihood of entry for a firm but also increase the likelihood that those firms will enter earlier.
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