Andrea Patacconi

Resource redeployability, uncertainty, and entry

Firm-level rigidity has long interested strategy researchers. We propose an as-yet-unexplored role of firm rigidity: entry deterrence. Prospective entrants face tremendous uncertainty, so scholars suggest they “experiment”, enter “lean”, then adapt to new information. Rigidity limits firms’ ability to do that. We predict that in rigid settings, (a) entry will be lower, (b) entrants’ early performance will be higher as they are less likely to enter speculatively, (c) and entrants’ performance and factor mix are less likely to converge to that of incumbents. We expect these effects to be mitigated when, despite low rigidity, firms cannot adjust due to frictions in factor markets. We operationalize rigidity as factor-rigidity and find support for our predictions using data from Western Europe from 2001-2014.Academics, the media, and policymakers have all raised concerns about the implications of human workers being replaced by machines or software. Few have discussed the implications of the reverse: firms’ ability to replace capital with workers. We show that this flexibility can help new firms over- come uncertainty and increase entrepreneurial entry. We develop a simple real options model where permissive labor regulations allow firms to take advantage of capital-labor substitutability by replacing ’rigid’ capital with ’flexible’ labor. The model highlights institutional, technological, and organizational preconditions to using this flexibility. Using a large and comprehensive dataset on entry by standalone firms and group affiliates, we provide evidence in support of the model.

Workers on Tap? How Labor Flexibility Fosters Experimentation and Business Creation

Firm-level rigidity has long interested strategy researchers. We propose an as-yet-unexplored role of firm rigidity: entry deterrence. Prospective entrants face tremendous uncertainty, so scholars suggest they “experiment”, enter “lean”, then adapt to new information. Rigidity limits firms’ ability to do that. We predict that in rigid settings, (a) entry will be lower, (b) entrants’ early performance will be higher as they are less likely to enter speculatively, (c) and entrants’ performance and factor mix are less likely to converge to that of incumbents. We expect these effects to be mitigated when, despite low rigidity, firms cannot adjust due to frictions in factor markets. We operationalize rigidity as factor-rigidity and find support for our predictions using data from Western Europe from 2001-2014.Academics, the media, and policymakers have all raised concerns about the implications of human workers being replaced by machines or software. Few have discussed the implications of the reverse: firms’ ability to replace capital with workers. We show that this flexibility can help new firms over- come uncertainty and increase entrepreneurial entry. We develop a simple real options model where permissive labor regulations allow firms to take advantage of capital-labor substitutability by replacing ’rigid’ capital with ’flexible’ labor. The model highlights institutional, technological, and organizational preconditions to using this flexibility. Using a large and comprehensive dataset on entry by standalone firms and group affiliates, we provide evidence in support of the model.

Papers to patents

The withdrawal of large US corporations from research is narrowing the scope of innovation. The withdrawal of large US corporations from research is narrowing the scope of innovation.

The Asymmetric Fundamental Transformation

This paper examines how asymmetries between partners in the ability to appropriate the returns from collaboration affect governance choices and investment patterns. We consider multiple pairs of upstream and downstream firms, where firms must collaborate to improve product components. We show that when there are significant initial asymmetries in appropriability, components are easily redeployable and market size is sufficiently large for asymmetries to be exploited, then there exists a Pareto-inferior equilibrium where unstructured collaboration between independent firms breaks down. As a result, some pairs may be better off formalizing their relationship or integrating. All organizational forms (unstructured and structured partnerships, and integration) can co-exist in equilibrium, despite all pairs being identical ex ante and facing the same environment. The relationship is symbiotic: more hierarchical modes of governance exert a positive externality over less hierarchical modes, which allows the latter to be sustained.