Okay, I’ll admit it, if I have a bent in this blog series, it has been to highlight the shift in policy towards a more progressive version of antitrust enforcement (or competition policy for those outside of the U.S.) and how these issues are relevant for our field. I will say this one last piece and then get back to writing the generic posts with tips and tricks for PhD students and interviews with faculty.
So, here are three reasons I think this is a fruitful area of exploration for entrepreneurship scholars:
1) Entrepreneurs themselves are openly saying that something is seriously wrong with the markets they operate in.
These voices include a wide range of business owners. I’ve been thinking about a lot about this letter that the CEO of Yelp wrote earlier this year, which formed part of a larger effort from over 40 technology companies to push the White House to support U.S. Senate Bill 2992 titled “The American Innovation and Choice Online Act”. This passage from Yelp’s letter has stood out for me:
If measured by market capitalization, the largest company that signed yesterday’s letter is about one thousandth the size of our country’s largest Big Tech firm. Make no mistake: this debate is between hollow and deeply dishonest attempts by companies like Google to spread misinformation versus smaller, scrappier companies that are trying to do right by consumers while competing fiercely in a market that is currently rigged against them. (Stoppleman, 2022)
Twitter is full of threads from independent small business owners in other markets and jurisdictions that echo this “rigged” experience competing against dominant firms. Just this past week, by the owner of The Screening Room, an indie movie theatre in Kingston, Ontario, received a lot of attention for detailing the reality of operating in a market which Cineplex owns 75% of. The thread explains why an indie theatre isn’t able to play Everything Everywhere All At Once, the latest movie from arthouse studio A24, upon its release because of a film distribution and booking paradigm that overwhelmingly favours Cineplex. The thread is worth reading but the gist of it is that Cineplex uses its market power to demand distributers grant it first choice on all movies and exclusive theatrical runs, which results in independent cinemas having to wait until Cineplex decides it no longer wishes to show a film. In practice, this meant The Screening Room had to wait 8 weeks until Cineplex was finished with showing Little Women — Cineplex’s last week of showing the film grossed $42 but when The Screening Room could offer it in week 9, it brought in $4,482 that week. Clearly there was a sizeable cohort of Kingston consumers who wanted the choice to support their local independent movie theatre and waited two months to see a movie everyone was talking about. One must wonder what The Screening Room could have grossed in the first week of the release of Little Women if it had equal access to new movies, and the implications for the opportunities and success of these small firms. These dynamics pushed indie theatres to band together to create the Network of Independent Canadian Exhibitors and submit a complaint to Canada’s Competition Bureau back in March 2020.
At the AOM ENT division level, Executives comprise 3.22% of our membership. But we often think of including entrepreneurs in our research simply as data source or considered during writing up the practical impacts included at the end of the paper or perhaps sometimes use their experiences at the beginning of a paper to ground the research. Admittedly, involving businesses in our research can be fraught. Increasingly however we are being evaluated on our ability to bring industry partners into grants and there are calls for exhibiting relevance and impact. . If prominent technology companies like Yelp and Sonos are raising the same alarm that your local indie movie theatre is, I would suggest now would be a good time to take their concerns about competition to heart in our research.
2) Policymakers need better data to update existing legislation and inform new policy proposals
Promoting entrepreneurship and innovation has typically been a popular plank of politicians’ platforms. However, as I noted in my previous blog, most industries have become increasingly consolidated over recent decades, leaving a few players with the majority of market share. Policymakers are then faced with a quandary: how to best stimulate business dynamism and innovation in heavily concentrated markets? Economists since the 1970’s have promoted a merger and acquisition-friendly paradigm and we are now at the point where the rate of new firm formation has declined almost 6% in the U.S. since 1978. The “monopoly-friendly” Canadian situation is worse – entry and exit rates declined by 11.4% and 4.9%, respectively, across all industries over the 30 years between 1983-2012. OECD research shows a similar international phenomenon, with firm entry rates down 3% across 18 countries and 22 industries between 2000-2015. Policymakers need insights from data on the connection between consolidated markets, competition, and entrepreneurship based on research performed by entrepreneurship scholars. By conducting specific studies to understand these linkages from the perspective of entrepreneurs, we can help policymakers design better competition and innovation legislation.
3) Opportunities for theory building
In reading for my qualifying exam, I came across this quote from Eckhardt and Shane in their 2003 JOM paper on opportunities: “mergers may also generate unproductive opportunities, as would be the case if a merger merely shifts wealth from consumers to producers by reducing competition” (Eckhardt & Shane, 2003, p. 344). This was one of the only references I had seen from entrepreneurship scholars to the potential effects of mergers and consolidation on opportunities, and I was excited to dig more into this area. Unfortunately, I came up with little research that had followed up on this idea of unproductive opportunities. Desperate, I emailed the authors and surprisingly received a quick response. Sadly, neither had much to add on this topic as it relates to market concentration and this idea, at least to my knowledge, remains unexplored. Obviously, this is one thread in an almost infinite pile of research questions but considering the first two points, I believe that by pursuing ideas related to competition and consolidation, we could find rich and rewarding theoretical contributions that would strengthen our existing body of knowledge.
Hopefully, these three points may have resonated with some readers, and if so, please let me know in the comments or send me an email at firstname.lastname@example.org. I would love to continue the conversation!
Eckhardt, J. T., & Shane, S. A. (2003). Opportunities and entrepreneurship. Journal of Management, 29(3), 333-349.
Stoppleman, J. (2022, January 19). This is a big week for antitrust policy in the United States. Yelp. https://blog.yelp.com/news/this-is-a-big-week-for-antitrust-policy-in-the-united-states/