Determinants of New-Firm Formations in Manufacturing Industries: Industry Dynamics, Entry Barriers, and Organizational Inertia

Abstract

This article utilizes the Ideas of Austrian economists, Industrial organization economists, and organization theorists to build a model of new-firm creation In manufacturing industries. Market dynamics create disequilibrium and profit opportunities for entrepreneurs. Whether available opportunities are exploited by existing firms, or through the founding of new firms Is dependent on the constraints on each of these types of entrepreneurs. Entry barriers tend to constrain new firms and therefore decrease the relative occurrence of new business formations. Organizational Inertia acts as a constraint on existing firms and thereby encourages the creation of new organizations.