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  5. How Do Entrants Build Market Share? The Role of Demand Frictions

American Economic Review: Insights

ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)

How Do Entrants Build Market Share? The Role of Demand Frictions

  • David Argente
  • Doireann Fitzgerald
  • Sara Moreira
  • Anthony Priolo
American Economic Review: Insights (Forthcoming)

Abstract

We construct a new data set to show that successful entrants in the consumer food sector build market share by adding new customers. Entrants reach new customers by entering more geographical markets, placing their product in more stores in these markets, and for a positively selected subset of firms, by advertising direct to customers. These activities are costly and are associated with persistent increases in quantities, but there are no differences in markups between new and mature markets. This confirms a central role for marketing and advertising in overcoming demand-side frictions that slow firm growth.

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