Technological Arbitrage Opportunities and Interindustry Differences in Startup Rates

Сентябрь 10, 2022

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Technological Arbitrage Opportunities and Interindustry Differences in Startup Rates

Содержание

2. Entrepreneurship across industries Entrepreneurial dynamics differs greatly between industries (Eckhardt, 2002) Historical explanation: appropriability regimes differ
3. Role of opportunities Entrepreneurship is pursuit of opportunities regardless of resources one controls (Stevenson & Jarillo,
4. Understanding entrepreneurial opportunities Some sort of ‘newness’ is a must Schumpeterian newness: new to the world
5. Arbitrage opportunities Arbitrage as “free lunch” Recognizing shown-to-exist but not yet widespread combinations of resources that
6. Prior experience and recognition of arbitrage opportunities Ability to recognize opportunities is conditioned by the prior
7. Narrow industry membership Narrow industry membership allows to identify new-to-the-firm combinations of resources that the firm
8. Arbitrage opportunities and entrepreneurial dynamics Innovation is risky (Thomas Edison example) Innovation is costly Innovation is
9. Appropriability regime unpacked Because arbitrageurs replicate someone else’s know how, there are unique risks in the
10. Effectiveness of patent protection Innovators are required to disclose the vital information in exchange for protection
11. Effectiveness of secrecy Exploitation of technological arbitrage opportunities is contingent on the ability of the arbitrageur
12. Effectiveness of lead time When lead time gives innovators substantial advantage, resource owners may re-price the
13. Data Compustat data on 26 industries over 1999-2003 10,650 firm-year observations Labor and capital as inputs;
14. Data (continued) U.S. Census Bureau – information on the number of firms by industries (by NAICS
15. Variables (DV, IV, moderators) Net startup rates: ratio of the difference in the stock of active
16. Control variables Innovative opportunities (average R&D intensity of the industry firms) (Malerba & Orsenigo, 1997; Dosi
17. Models and estimations Model 1: control variables Model 2: direct effects Model 3: interactions Estimation: Random
18. Arbitrage opportunities across industries
19. Results
20. Arbitrage opportunities, effectiveness of patents, and startup rates
21. Arbitrage opportunities, effectiveness of secrecy, and startup rates
22. Arbitrage opportunities, effectiveness of lead time, and startup rates
23. Validation Similar results were obtained when using alternative sources of information on entrepreneurship: Share of self-employed
24. Discussion Arbitrage opportunities vary a great deal across industries Arbitrage opportunities explain startup rates across industries
25. Questions?
27. Скачать презентацию

Слайд 2

Entrepreneurship across industries
Entrepreneurial dynamics differs greatly between industries (Eckhardt, 2002)
Historical explanation:

appropriability regimes differ (Levin et al., 1987)
Yet by itself appropriability does not explain much: you have to have some rents to appropriate. Hence, opportunities to create rents are the key

Слайд 3

Role of opportunities
Entrepreneurship is pursuit of opportunities regardless of resources one

controls (Stevenson & Jarillo, 1990)
Entrepreneurial rents are typically associated with innovation and technological change
Technological opportunities are distributed unevenly across industries (Klevorick et al., 1995) and thus may explain differences in entrepreneurial dynamics across industries

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Understanding entrepreneurial opportunities
Some sort of ‘newness’ is a must
Schumpeterian newness: new

to the world combinations a.k.a. grand innovation
This kind of newness dominates entrepreneurship research (Shane, 2002)
Kirznerian newness: new to the firm, not to the world a.k.a. petty innovation
This kind of newness dominates practice (Anokhin et al., 2010): 71% of Inc 500 startups used ideas/technologies/products they had learned while at a former employer (Bhide, 2000)

Слайд 5

Arbitrage opportunities
Arbitrage as “free lunch”
Recognizing shown-to-exist but not yet widespread combinations

of resources that allow to buy low, recombine, and sell high with certainty (Kirzner, 1997)
Ends and means are ‘given’ so firms can optimize (Eckhardt & Shane, 2003)
‘Trivial’ opportunities (Alvarez & Barney, 2004)

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Prior experience and recognition of arbitrage opportunities
Ability to recognize opportunities is

conditioned by the prior experience (Shane, 2000), such that firms look for arbitrage opportunities in their narrow industries
CVT transmission example
Ability to exploit opportunities is also conditioned by the industry
Firms in the same industry are subject to identical external forces and are likely to develop similar resource portfolios to address them

Слайд 7

Narrow industry membership
Narrow industry membership allows to identify new-to-the-firm combinations of

resources that the firm is able to replicate
Thus, arbitrage opportunities indeed become ‘trivial’ optimization under ‘given’ means-ends frameworks
Absent further change in the industry, arbitrage opportunities are temporary and finite – but virtually without uncertainty

Слайд 8

Arbitrage opportunities and entrepreneurial dynamics
Innovation is risky (Thomas Edison example)
Innovation is

costly
Innovation is uncertain (market may not accept it even if technology works)
Arbitrage: none of the above. All one needs to do is initiate the process of purposeful knowledge spillover (Acs et al., 2009) (CVT; diet soda examples – Schnaars, 1994)
H1: There is a positive relationship between arbitrage opportunities and startup rates in the industry

Слайд 9

Appropriability regime unpacked
Because arbitrageurs replicate someone else’s know how, there are

unique risks in the arbitrage opportunities pursuit:
Effectiveness of patent protection (as opposed to the ease of ‘inventing around’)
Effectiveness of product secrecy (vis-à-vis ‘deciphering’ the know how by imitators)
Effectiveness of lead time

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Effectiveness of patent protection
Innovators are required to disclose the vital information

in exchange for protection
Some industries (e.g., pharmaceuticals) are effectively shielded from imitation: ‘inventing around’ is not an option (FDA clearance)
Any attempt at replicating is likely to be met with a lawsuit
H2: Effectiveness of patents as a means to ward off imitation negatively moderates the relationship between arbitrage opportunities and startup rates in the industry

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Effectiveness of secrecy
Exploitation of technological arbitrage opportunities is contingent on the

ability of the arbitrageur to decipher and replicate the more effective resource combinations (Acs et al., 2009)
Would-be imitators risk not being able to replicate the new resource combination (examples: Coke, KFC secret seasoning)
New entrants thus are reduced to pursuing generic (i.e., average) resource combinations
H3: Effectiveness of secrets as a means to ward off imitation negatively moderates the relationship between arbitrage opportunities and startup rates in the industry

Слайд 12

Effectiveness of lead time
When lead time gives innovators substantial advantage, resource

owners may re-price the resources to reflect the new means-ends framework before imitators are able to replicate it.
Competitive advantage accorded to the arbitrageur by the more effective way to combine resources will not last long enough to justify imitative entry
H4: Effectiveness of lead time as a means to ward off imitation negatively moderates the relationship between arbitrage opportunities and startup rates in the industry

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Data
Compustat data on 26 industries over 1999-2003
10,650 firm-year observations
Labor and capital

as inputs; Sales as output (Fare et al., 1998)
Two-step procedure:
Intertemporal frontier calculation to determine representative slope
Arbitrage opportunities calculation for each industry-year given the common industry slope

Слайд 14

Data (continued)
U.S. Census Bureau – information on the number of firms

by industries (by NAICS codes) from 1998 to 2005 to test different time lags
NBER data on the appropriability regimes (Cohen, Nelson, & Walsh, 2000)

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Variables (DV, IV, moderators)
Net startup rates: ratio of the difference in

the stock of active businesses in time t and (t-1) to the stock of active businesses in (t-1)
Arbitrage opportunities: average firm distance from the production frontier in the industry (i.e., it is arbitrage opportunities available to a typical industry firm)
Appropriability regime dimensions (patents, secrecy, lead time) are based on the percentage of innovation for which the respective mechanisms are deemed effective by the firm R&D and intellectual property specialists (survey-based estimate)

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Control variables
Innovative opportunities (average R&D intensity of the industry firms) (Malerba

& Orsenigo, 1997; Dosi et al., 2006)
Industry concentration ratio (share of the market controlled by the four largest firms)
Year dummies

Слайд 17

Models and estimations
Model 1: control variables
Model 2: direct effects
Model 3: interactions
Estimation:

Random effects, corrected for the first-order autoregression in the disturbance term (Baltagi & Wu, 1999)

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Arbitrage opportunities across industries

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Results

Слайд 20

Arbitrage opportunities, effectiveness of patents, and startup rates

Слайд 21

Arbitrage opportunities, effectiveness of secrecy, and startup rates

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Arbitrage opportunities, effectiveness of lead time, and startup rates

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Validation
Similar results were obtained when using alternative sources of information

on entrepreneurship:
Share of self-employed (Audretsch et al., 2009)
Number of non-employers (U.S. Census Bureau)

Слайд 24

Discussion
Arbitrage opportunities vary a great deal across industries
Arbitrage opportunities explain startup

rates across industries above and beyond innovative opportunities
Arbitrage opportunities explain over 30% of variance in industry startup rates
Once arbitrage opportunities enter the picture, innovative opportunities lose their significance

Слайд 25

Technological Arbitrage Opportunities and Interindustry Differences in Startup Rates

Содержание

Entrepreneurship across industriesEntrepreneurial dynamics differs greatly between industries (Eckhardt, 2002)Historical explanation:

Role of opportunitiesEntrepreneurship is pursuit of opportunities regardless of resources one

Understanding entrepreneurial opportunitiesSome sort of ‘newness’ is a mustSchumpeterian newness: new

Arbitrage opportunitiesArbitrage as “free lunch”Recognizing shown-to-exist but not yet widespread combinations

Prior experience and recognition of arbitrage opportunitiesAbility to recognize opportunities is

Narrow industry membershipNarrow industry membership allows to identify new-to-the-firm combinations of

Arbitrage opportunities and entrepreneurial dynamicsInnovation is risky (Thomas Edison example)Innovation is

Appropriability regime unpackedBecause arbitrageurs replicate someone else’s know how, there are

Effectiveness of patent protectionInnovators are required to disclose the vital information

Effectiveness of secrecyExploitation of technological arbitrage opportunities is contingent on the

Effectiveness of lead timeWhen lead time gives innovators substantial advantage, resource

DataCompustat data on 26 industries over 1999-200310,650 firm-year observationsLabor and capital

Data (continued)U.S. Census Bureau – information on the number of firms

Variables (DV, IV, moderators)Net startup rates: ratio of the difference in

Control variablesInnovative opportunities (average R&D intensity of the industry firms) (Malerba

Models and estimationsModel 1: control variablesModel 2: direct effectsModel 3: interactionsEstimation: