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Entrepreneurial Opportunities, Implicit Contracts, and Market Making for Complex Consumer Goods
Author(s) -
Godley Andrew Christopher
Publication year - 2013
Publication title -
strategic entrepreneurship journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 5.061
H-Index - 46
eISSN - 1932-443X
pISSN - 1932-4391
DOI - 10.1002/sej.1167
Subject(s) - adverse selection , moral hazard , order (exchange) , entrepreneurship , product (mathematics) , function (biology) , quality (philosophy) , business , marketing , economics , industrial organization , microeconomics , incentive , finance , philosophy , geometry , mathematics , epistemology , evolutionary biology , biology
This article extends the theory of entrepreneurial opportunity exploitation, outlining how under certain conditions, opportunity exploitation is dependent on market making innovations. Where adverse selection and moral hazard characterize markets, consumers are likely to withdraw regardless of product quality. In order to overcome consumer resistance, entrepreneurs must signal credible commitments. But because consumers purchase without fully specifying requirements, entrepreneurs' commitments take the partial form of implicit contracts, creating strong mutual commitments to repeated transactions. These commitments enable novel markets to function, but introduce additional costs. This article illustrates the theory with the historic case of Singer in sewing machines. © 2013 The Author. Strategic Entrepreneurship Journal published by John Wiley & Sons Ltd on behalf of Strategic Management Society.