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An economic sociology of entry barriers: Business entry and the inner city market

Jeffrey A Robinson, 2005
Faculty Advisor: Paul Ingram
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Abstract

In this dissertation I argue that inner city markets pose a challenge for business managers and entrepreneurs because many do not understand how to address important social and institutional factors that exist in these markets. Business opportunities in inner city markets are shaped by these factors and therefore different approaches to entrepreneurship are necessary.

To explain these patterns, I present a theory of social and institutional entry barriers that describes how these non-economic factors shape the structure of entrepreneurial opportunity for inner city markets. I make the case that entry barriers fall into three categories. In addition to the neo-classical economic entry barriers described by Bain (1956), I define social and institutional entry barriers. Social entry barriers such as networks of resources and access to an appropriate workforce are related to the social structure of the market. Institutional entry barriers such as political stability, culture, norms, and values, are related to the institutional structure of the market.

I employed three different research methodologies to test the validity of this theory. I collected interview and observation data to gather the experiences and perspectives of entrepreneurs who operate within inner city markets. I conducted a vignette study to test how the perception of inner city markets can pose a cognitive basis for non-entry to the inner city market. I found that entrepreneurs with inner city business experience evaluated these business opportunities better than those without this experience. I conducted a survival analysis of firms in the Upper Manhattan Empowerment Zones. I found that partnership for firms that are operated by entrepreneurs with limited inner city experience is an important factor for survival. All of these findings are consistent with the theory of social and institutional barriers to markets.

This dissertation contributes to both organization and entrepreneurship theory by using economic sociology to define how the existence of social and institutional entry barriers 'lock' many business opportunities within inner cities. I conclude that this kind of embeddedness influences the decision to enter a new market and the performance of firms within inner city markets.

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