Entrepreneurial Opportunities, Implicit Contracts, and Market Making for Complex Consumer Goods

Authors

  • Andrew Christopher Godley

    Corresponding author
    1. Centre for Entrepreneurship, Henley Business School, University of Reading, Reading, U.K.
    • Correspondence to: Andrew Godley, Centre for Entrepreneurship, Henley Business School, University of Reading, Reading RG6 5UD, U.K. E-mail: a.c.godley@henley.reading.ac.uk

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Abstract

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.

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