FOLLOW THE LEADER - MIMETIC ISOMORPHISM AND ENTRY INTO NEW MARKETS

This paper combines organizational ecology and neoinstitutional theory to explain the process of diversification, specifically, how the stru cture of markets affects rates of market entry. I extend the density-d ependence model of competition and legitimation, which has been used t o study organizational founding and failure, to the process of organiz ational change through entry into new markets. I argue that the number of organizations operating in a particular market will have an invert ed-U-shaped relationship with the rate of entry into that market. I al so examine propositions, drawn from neoinstitutional theory, that orga nizations will follow similar and successful organizations into new ma rkets. I assess the link between entry into new markets and (1) the nu mber of organizations operating in those markets similar to a potentia l entrant and (2) the number of successful organizations in those mark ets. I also explore whether these two mimetic processes act in concert by examining whether successful potential entrants to a market are in fluenced by the presence of other successful organizations. I test the se hypotheses on a population of savings and loan associations. I find that these firms imitate large and profitable organizations, but I fi nd only limited evidence of imitation of similarly sized organizations , as large organizations copy the actions of other large organizations .