Entry-Timing Advantages in Renewable Natural Resources Industries

Abstract

In this paper, we explore the conditions of entry-timing advantages in renewable natural resource industries. Drawing from behavioural theory of the firm, we classify firms in two groups depending on the different heuristics used to make entry decisions when facing the cyclical endogenous nature of these industries: crowd firms are procyclical, making decisions based on the current phase of the industry cycle, whereas anti-crowd firms follow a countercyclical strategy, making uncertain, and risky decisions by estimation of the next phase of the cycle. Therefore, anti-crowd firms anticipate the deployment of resources each cycle, potentially gaining entry-timing advantages beyond those provided by traditional competitive isolating mechanisms. Through a mathematical simulation of a performance feedback model, we reveal that the entry-timing advantage of the anti-crowd group becomes possible when the rivalry in the industry and the price sensitivity of competitors are high, and when the time required to deploy the resources is short.