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An established firm can enter a new product market through acquisition or internal development. Predictions are that the choice of market entry mode depends on "Relatedness" between the new product and the firm's existing products have repeatedly failed to gain empirical support. Author resolves ambiguity in prior work by developing dynamic measures of relatedness, and by making a distinction between entries inside versus outside a firm's primary business domain. Using a fine-grained data set on the telecommunications sector, it's found that inside a firm's primary business domain, acquisitions are used to fill persistent gaps near the firm's existing products, whereas outside that domain, acquisitions are used to extend the enterprise in new directions.
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