Dynamic Entry With Demand and Supply Side Spillovers

Abstract

Supply side spillovers have been used to explain firms' entry behavior in the pharmaceutical industry. In contrast, demand side spillovers have received less attention. This paper identifies supply and demand spillovers using a dynamic model of strategic interaction. The results indicate that demand side spillovers are more significant than the supply side spillovers to generic drug firms, and the demand side spillovers increase a firm's market share by 3%–4% on average in subsequent market entry. In addition, with supply side spillovers alone, lowering entry barriers can increase future entry rates, while in the case of demand side spillovers, lowering entry barriers will have the opposite effect. (JEL L110, L130, D220)

Addressing endogeneity in the causal relationship between sustainability and financial performance

“…Specifically following Bresnahan and Reiss (1991a;1991b), characterization of the discrete game as a generalization of a standard discrete choice model where utility depends on the actions of other players, opened up the possibility of applied research in this field. Strategic interactions in different problem settings such as market entry (Berry 1992;Gallant, Han, and Khawaja 2018;Tan 2019), labor force participation (Björn and Vuong 1984;Keane and Wolpin 1997), long-term care and family bargaining (Stern and Heidemann 1999) auctions (Bajari and Hortacsu 2003;Athey, Levin, and Seira 2008), technology adoption (Ryan and Tucker 2012) has been addressed as discrete games.…”

“…More recent papers such asGallant, Han, and Khawaja (2018) andTan (2019) estimate a dynamic game of entry decisions of moderate number of entrants with spillover effects in Pharma industry. Similar dynamic setting can be applied to strategic interactions in sustainability market.…”

Estimation of the static corporate sustainability interactions

“…Specifically following Bresnahan and Reiss (1991a;1991b), characterization of the discrete game as a generalization of a standard discrete choice model where utility depends on the actions of other players, opened up the possibility of applied research in this field. Strategic interactions in different problem settings such as market entry (Berry 1992;Gallant, Han, and Khawaja 2018;Tan 2019), labor force participation (Björn and Vuong 1984;Keane and Wolpin 1997), long-term care and family bargaining (Stern and Heidemann 1999) auctions (Bajari and Hortacsu 2003;Athey, Levin, and Seira 2008), technology adoption (Ryan and Tucker 2012) has been addressed as discrete games.…”

Export rivalry and exchange rate pass‐through

“…3 Piveteau (2016) and Rodrigue and Tan (2019) both document that in order to build brand reputation (demand stock), firms have a strong incentive to lower their current price to increase sales, which will grow their reputation (future demand stock). 4 Tan (2019) develops a model to capture the cross-market demand spillovers, in which conditioning on other firms' strategy, a firm that enters more markets (more sales) will have higher sales in a new market. This implies that better performance in one market will enhance firm competitiveness and performance in other markets.…”

“… Tan () develops a model to capture the cross‐market demand spillovers, in which conditioning on other firms’ strategy, a firm that enters more markets (more sales) will have higher sales in a new market. This implies that better performance in one market will enhance firm competitiveness and performance in other markets.…”