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Spinoff Entry in High-tech Industries: Motives and Consequences



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Spinoff Entry in High tech Industries Motives and Consequences Steven Klepper Carnegie Mellon University Peter Thompson Florida International University February 2005 Various theories have been advanced for why employees leave incumbent firms to found firms in the same industry which we call spinoffs We review the accumulating evidence about spinoffs in various high tech industries highlighting the central role often played by disagreements Because existing theories have ignored them we develop the foundations of a model of spinoff formation driven by disagreements Doing so proves to be rather challenging because disagreements are not possible among rational actors that talk to each other We introduce a minimal degree of non rationality based on the concept of solipsism and ask whether such a concept is capable of generating predictions consistent with the empirical literature Dept of Social Decision Sciences Carnegie Mellon University Pittsburgh PA 15213 email sk3f andrew cmu edu Klepper gratefully acknowledges support from the Economics Program of the National Science Foundation Grant No SES 0111429 Department of Economics Florida International University Miami FL 33199 email peter thompson2 fiu edu I Introduction In recent years interest has grown in the phenomenon of entrepreneurship One does not have to look beyond Silicon Valley to see the importance of new enterprises which seemingly have played a key role in the region s vitality But where do new enterprises come from Surprisingly little is known about the origin of entrants especially new enterprises This is perhaps a legacy of the way entry is typically modeled in theories of competition It has always been assumed that if entry is profitable it will occur It is not at all clear though whether such confidence is justified Geroski 1995 Recent work suggests that entrants are quite diverse at birth and their pre entry experience persistently affects their performance Carroll et al 1996 Geroski Mata and



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