Liability of newness suspended: The survival of multiunit new entrants in U.S. beer wholesaling

Abstract

This paper focuses on an intermediary market segment and examines what happens to its incumbents and new entrants when there is a surge in the number of potential upstream partners. In the past thirty years in the U.S. beer industry, as the number of beer producers (i.e., brewers) proliferated, their intermediaries (i.e., wholesaler distributors) declined. This paper examines how under these conditions, two constraints, operating unit structure and historical competitive pressure effect the survival chances of new entrants and incumbent establishments. I use data on the population of U.S. beer distributors from the Longitudinal Business Database (1983–2013) and find that multiunit new entrants have better survival chances than multiunit incumbents. Furthermore, they are more likely to survive in areas where historical competitive pressure is high. I explain this finding via a social mechanism and show that in dynamic market contexts it is easier to create entirely new market ties than to change the old, socially embedded ones.

Keywords: entrepreneurship, strategy, competition, organizational failure, liability of newness

JEL Classification: L25, L26, L81