Why do established firms enter some industries and exit others? Empirical evidence on Italian business groups

In this paper the determinants of entry and exit decisions are analysed emp irically on a sample of well established business groups operating in Itali an manufacturing. The focus is on the role of sunk costs as entry barriers. Two competing hypotheses are tested. On the one hand, setup costs, R & D a nd advertising outlays act as barriers to entry for both new and already es tablished firms because of their industry-specific commitment value. On the other hand, they may induce established firms, which operate in similar in dustries, to enter. This is the case if R & D and advertising are firm-spec ific investments which generate externalities to be efficiently exploited i n adjacent industries. Overall results suggest that the second hypothesis g ives a better picture of the behaviour of our sample of firms.