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Diversification by entry into a new submarket?

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Using a dataset on the subsector and geographical segmentation of 208 Pharmaceutical companies, a Bayesian panel probit is used to analyze the role of state dependency, size and achieved diversification in affecting entry decision. We properly account for unobservable heterogeneity in a context with nonstrictly exogenous regressors. We find that achieved diversification, measured by the number of submarkets already entered affects negatively the probability of entry. Beside some country-specific exceptions, size and the lagged dependent variable do not seem to be relevant.

Keywords: Bayesian inference; C11; C23; C25; L11; L65; diversification; entry; panel data; probit model; random effects

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.628297

Affiliations: 1: DG-Research, European Central Bank, Dipartimento di Scienze Economiche,Università di Brescia, Brescia, Italy 2: Dipartimento di Economia,Management e Metodi Quantitativi, Università degli Studi di Milano, Milano, Italy

Publication date: April 1, 2013

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