Software availability and entry

• DOI: http://doi.org/10.1002/smj.3105
• Author: Victor M. Bennett,Todd A. Hall
• Published date: 01 May 2020
• Date: 01 May 2020

SHORT RESEARCH ARTICLE

Software availability and entry

Victor M. Bennett | Todd A. Hall

Fuqua School of Business, Duke

University, Durham, North Carolina

Correspondence

Victor M. Bennett, Fuqua School of

Business, Duke University, 100 Fuqua

Drive, Durham, NC 27705.

Email: vmb10@duke.edu

Abstract

Research Summary:What happens to market structure as

an industry's operations lean ever more on software? We

find that software availability is associated with an

increase in entry and an increase in exit by the oldest and

most established firms. We suggest three potential mecha-

nisms and, through post hoc analysis, determine which is

most consistent with observed patterns. We find the effect

of software availability on entry is stronger in settings with

more available IT talent, more permissive labor policies,

and greater demand uncertainty. Observed patterns are

most consistent with software enhancing labor productiv-

ity and thus reducing exposure to uncertainty.

Managerial Summary:Managers and policymakers are

concerned with whether technologies like software and

robotics spreading to new industries can make powerful

firms even harder to unseat. For software, we find evi-

dence consistent with the opposite: as software becomes

more prevalent, entry by new firms increases and the like-

lihood that older firms exit increases. The patterns of entry

we observe are consistent with the following mechanism.

Software allows the same number of employees to serve a

wider range of production levels, meaning that potential

startups are less likely to be deterred by uncertain demand.

KEYWORDS

digitization, entrepreneurship, entry, scaling, software

Competitive dynamism and sustainability of competitive advantage are currently central societal con-

cerns. The effect of technological change—especially the spread of software, has received particular

attention. Recent work in Economics suggests that software may favor larger firms, leading to

increased concentration (Autor, Dorn, Katz, Patterson, & Van Reenen, 2017; Bessen, 2017; Van

Received: 21 June 2018 Revised: 27 August 2019 Accepted: 24 September 2019 Published on: 19 November 2019

DOI: 10.1002/smj.3105

950 © 2019 John Wiley & Sons, Ltd. Strat. Mgmt. J. 2020;41:950–962.wileyonlinelibrary.com/journal/smj