Entry plays a crucial role in microeconomic models of market structure and performance. In this study we examine the determinants of entry and test hypotheses about the entry deterring effects of advertising and excess capacity on entry.
The subject of the analysis is the cross section differences on entry between the 5-digit industries of the Korean manufacturing sector. This study's treatment of entry barriers has several important advantages over previous work. The variables considered to be entry barriers are introduced directly as determinants of entry rather than the profit rate.
Firm behavior in oligopolistic ( or monopolistic ) market is typically strategic, so our study focuses on the analysis for the entry deterring strategies of incumbents in oligopolistic ( or monopolistic) industries.
The most important results are that the impact of advertising on entry is positive, but the strategic capacity investment impedes entry. These results support the competitive theory of advertising and the excess capacity hypothesis. From this analysis we know that there exists a difference between the effects of capacity and advertising investment on entry.
Second, the demand growth and profit rate in oligopolistic industries have negative effects on entry in contrast with those effects in the other industries. This result might be caused by the signaling effects of the demand growth and profit rate on entry.