Finalist for the OMT Division Best Paper on Entrepreneurship Award
In the majority of industries, organizational density follows a common pattern: A slow start is followed by a rapid ascend to a peak, which then gives its place to an often equally abrupt, precipitous decline. Analyzing this dominant pattern, extant literature has focused predominantly on economic explanations: abnormal economic returns attract entrepreneurs and increase entry until a new industry’s carrying capacity is saturated. Subsequently, intensifying competition leads to concentration, exit, and lower levels of density. Nevertheless, similar patterns can be created by attention-based dynamics of diffusion and abandonment that have little to do with the availability of economic resources. Using data on Greek stock brokerage firms, we explore alternative, economic and social, explanations. Results suggest that social dynamics such as fads can be more important than the availability of economic resources in driving entrepreneurial action. Bringing such dynamics into the analysis of industry life cycles and entrepreneurship can thus contribute significantly to a richer and more nuanced understanding of industry evolution.
