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Abstract

Recent changes in U.S. energy policy have prompted the growth of the bio energy market. The ability to quickly enter and respond to the opportunities of this market is critical to an agribusiness’ success. Understanding entry into this rapidly growing bio energy market, however, is not well understood. In drawing on management theories of the Resource Based View (RBV) and that of Organizational Ecology, this study develops a conceptual and dynamic programming model to explain the entry behaviors of different types of bio energy businesses. A contribution of this study is it demonstrates that bio energy entry decisions emphasize a basic trade-off involving gains from a commitment to specialized, and correspondingly higher cost assets, and gains from remaining flexible with lower levels of fixed and less specific assets. This commitment-flexibility trade-off not only underlies entry, but such a trade-off is argued to be influenced by the population and uncertain conditions of the market. Importantly our work also sheds light on the implicit risks of the ethanol industry, and in part explains how corn-based dry mills and cellulosic-ethanol conversion technologies may be ideal depending on the type of market conditions upon entry.

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