Entry by Spinoffs

Published in: Management Science, v. 51, no. 8, Aug. 2005, p. 1291-1306

Posted on RAND.org on December 31, 2004

by Steven Klepper, Sally Sleeper

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Entry by spinoffs from incumbent firms is investigated for the laser industry. A model in which spinoffs exploit knowledge from their parents is constructed to explain the market conditions conducive to spinoffs, the types of firms that spawn spinoffs, and the relationship of spinoffs to their parents. The model is tested using detailed data on all laser entrants from the start of the industry through 1994. Our findings support the basic premise of the model that spinoffs inherit knowledge from their parents that shapes their nature at birth. Implications of our findings for organizational behavior, business strategy, entry and industry evolution, and technological change are discussed.

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