Impact of new entries on profitability of manufacturing incumbent firms: from the view of escape competition effect and its heterogeneity


CHEN Yanying;WU Long


Faculty of Management and Economics, Dalian University of Technology;Faculty of Management and Economics, Dalian University of Technology


Taking the escape competition effect and its heterogeneity effect among firms as the core, this paper investigated the influencing mechanism of new entries on the incumbent firms. Based on this, this paper employs the quantile regression method that involves instrument variables and studies the influence of new entries on incumbent firms’ profitability. The result shows that since the start of the reform, new entries in manufacturing industries did not mean profit erosion to the incumbent firms but a trigger of profitability enhancement. The relationship between the enhancing effect incurred by the new entries and the profitability of the incumbent firms presents a U-curve shape, and the firms with lower and higher profitability gain more profit than other firms. Empirical tests of subsamples divided by industries show that the U-curve effect is common in the heavy industry; while in the light industry, the heterogeneity of the influence of entries on the profitability of the incumbent firms is mainly reflected in the following: its enhencement effect decreases as the profitability level of incumbent firms increases. As to the policy making process of the government, the government should not limit the new entries in China’s manufacturing industries taking excuses of deteriorating profitability and avoiding excessive entries. The government should on one hand encourage new entries and on the other hand accelerate the process of the perfection of the system of intellectual property rights protection, strengthen the construction of legal system and business ethics, and reduce the exiting cost of firms.


new entries;profitability;investment in heterogeneous resources;escape competition effect


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Total: 40 articles

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