The Dynamics of Firms' Entry and Diversification: A Bayesian Panel Probit Approach. A Cross-country analysis

In this paper we analyze entry dynamics in new submarkets of pharmaceutical companies. In particular we study entry decisions at time t in a new submarket, conditioned on the entrance in a new submarket at time t-1. This model allows us to connect with the flourishing literature about the prominent role of submarkets, (Klepper and Thompson, 2002, Mitchell, 2000 and Sutton,1998) in explaining diversification and entry choices. Our analysis is based on a Bayesian approach which allows us to properly account for heterogeneity among firms. We try to manage the inclusion among regressors of non strictly exogenous variables, which can be correlated with unobserved heterogeneity,(Honoré and Kyriazidou, 2000, Honoré and Lewbel, 2002, Arellano and Carrasco,2003, Wooldridge, 2003).