The general density dependence model can be applied to explain the founding of specialist firms (those attempting to serve a narrow target market). According to this model, specialist foundings hinge on the interplay between legitimation and competitive forces, both of which are functions of the density (total number) of firms in a particular specialist population. Legitimation occurs as a new type of firm moves from being viewed as unfamiliar to being viewed as a natural way to organize. At low density levels, each founding increases legitimation, reducing barriers to entry and easing subsequent foundings. Competition occurs because the resources that firms seek--customers, suppliers, and employees--are limited, but as long as density is low relative to plentiful resources, the addition of another firm has a negligible impact on the intensity of competition. At high density levels, however, competitive effects outweigh legitimation effects, discouraging foundings. The more numerous the competitors, the fiercer the competition will be and the smaller will be the incentive for new firms to enter the field.
While several studies have found a significant correspondence between the density dependence model and actual patterns of foundings, other studies have found patterns not consistent with the model. A possible explanation for this inconsistency is that legitimation and competitive forces transcend national boundaries, while studies typically restrict their analysis to the national level. Thus a national-level analysis can understate the true legitimation and competitive forces as well as the number of foundings in an industry that is internationally integrated. Many industries are or are becoming international, and since media and information easily cross national borders, so should legitimation and its effects on overseas foundings. For example, if a type of firm becomes established in the United States, that information transcends borders, reduces uncertainties, and helps foundings of that type of firm in other countries. Even within national contexts, studies have found more support for the density dependence model when they employ broader geographic units of analysis--for example, finding that the model's operation is seen more clearly at the state and national levels than at city levels.
Question #4. According to the passage, which of the following may account for the inconsistency between the general density dependence model and the evidence provided by certain studies of foundings?
(A) Such studies have overemphasized the impact of preexisting firms on the establishment of new firms.
(B) Such studies have not focused strongly enough on the role of competition among newly established firms operating at the city and state levels.
(C) Such studies fail to differentiate among specialist firms with regard to the degree to which they deviate from familiar forms of organization.
(D) Such studies have not taken into account the fact that many industries are internationally integrated.
(E) Such studies have neglected to investigate firms that attempt to serve only a narrow target market.
Question #5.In the second paragraph, the author is primarily concerned with
(A) noting various exceptions to a certain general finding
(B) examining the impact of one type of industry on another
(C) proposing a possible explanation for an inconsistency
(D) providing specific examples of a particular phenomenon
(E) defending the validity of a particular study's conclusions
Question #6.The passage suggests that when a population of specialist firms reaches a high density level, which of the following is likely to occur?
(A) Foundings will decline despite legitimation that has occurred in these industries.
(B) Increasing competition will encourage many firms to broaden their target market.
(C) Competition for resources will become stabilized and thus foundings will be encouraged.
(D) Many customers will abandon their loyalty to older firms as more innovative firms enter the market.
(E) Firms will begin to cross national borders in an attempt to gain a competitive advantage.
Question #7.The primary purpose of the passage is to
(A) question the validity of an economic model
(B) point out some inconsistencies within an economic model
(C) outline an economic model and suggest revisions to it
(D) describe an economic model and provide specific examples to illustrate its use
(E) explain why an economic model remains valid despite inconsistent research results