"We study the decision to become an entrepreneur in the online business context. Using entrepreneurs affiliated with Taobao Marketplace, the world’s largest online shopping platform, as our sample, we find that people who observe the salient emergence of successful stores in their neighborhood are more likely to become online entrepreneurs. Relying on the Taobao store rating system and detailed geographical information for identification, we find that in rural areas of China, an increase in the online rating (upgrade event) of a store leads to a significant increase in the number of new stores in areas near the event store. This effect decreases with physical distance from the event store and increases with the level of the event saliency. However, such decisions to enter the market may be suboptimal, as entrants whose entrepreneurs are motivated by local upgrade events underperform relative to other entrants in terms of sales, especially during negative overall market conditions. Our results lend support to salience theories of choice and cannot be fully explained by rational learning or other regional confounders.
|Effective start/end date
|1/07/21 → 1/12/24
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