Relatedness and Market Exit

42 Pages Posted: 20 May 2010

See all articles by Gwendolyn Lee

Gwendolyn Lee

INSEAD - Strategy

Timothy B. Folta

Purdue University - Krannert School of Management

Marvin B. Lieberman

UCLA Anderson School of Management

Date Written: May 20, 2010

Abstract

Researchers in corporate strategy have long argued that resource "relatedness" contributes to a firm’s competitive advantage. One implication is that entries made by a firm into businesses that are closely related to the firm’s existing businesses should have higher survival rates than entries by the firm into unrelated businesses. In contrast to this traditional view, we offer a distinct perspective in which relatedness increases a firm’s likelihood of abandoning new businesses. Using a sample of more than 1,200 market entries in the U.S. telecommunications sector during 1989-2003, we show that the rate of market exit increased with the relatedness of the new business to the firm’s existing businesses.

Keywords: Relatedness, Entry, Exit, Sunk Cost, Real Option, Resource Redeployment

Suggested Citation

Lee, Gwendolyn and Folta, Timothy B. and Lieberman, Marvin, Relatedness and Market Exit (May 20, 2010). INSEAD Working Paper No. 2010/39/ST. Available at SSRN: https://ssrn.com/abstract=1612190 or http://dx.doi.org/10.2139/ssrn.1612190

Gwendolyn Lee (Contact Author)

INSEAD - Strategy

Boulevard de Constance
77305 Fontainebleau
France

Timothy B. Folta

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
765-494-9252 (Phone)

Marvin Lieberman

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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