First Mover Advantages
• Profits prior to entry
• Ability to create long-run competitive
advantage
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Brand name/Customer recognition
Control of distribution channels
Capacity
Technological lead
Learning curve
First Mover Advantage (1):
Technological leadership
• Learning curve
Costs fall with cumulative output due to increases in
efficiency
• if too steep, followers catch up quickly
• if too flat, cost advantages from learning not large
• inter-firm technology diffusion limits learning
advantages
• inter-firm mobility of workers , technological
communication, reverse engineering etc.
• Patents
• extent to which protection valuable varies by industry
First Mover Advantage (2):
Preemption of assets
First Mover Advantage (3):
Switching costs
• Preemption of input factors
• Preemptive investment in capacity
• Investments buyers make in sellers product
• Supplier specific learning
• Contractual switching costs (frequent flier
programs)
• Uncertainty -- brand loyalty/quality
reputation
• Psychology -- order of entry matters
Second Mover Advantage
Gaining first mover status
• Can free ride on R&D effort
• Can free ride on first-mover’s marketing
• Benefit from resolution of uncertainty (ex.
technological standards)
• Incumbent inertia (incumbent might harvest
sunk investments rather than innovating)
• Enterprise, Fox first movers in subindustries.
• Why are good market positions not taken?
(Factors non-mobile for rents to flow to firm)
• natural resource deposits
• prime retailing/manufacturing locations
• wholesalers/employees ?
• Preemption of space
• Wal-mart (physical)/ Cereal (product space)
– Limited knowledge about what is demand in a
particular segment
– If you wait until a segment is clearly big enough
to support demand, you’ve waited too long.
– Mismatch between the segment’s particular
success factors and incumbent’s assets.
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First Mover Advantages and
Enterprise
• Preemptive capacity choice
– would Enterprise have so many offices if entry
were impossible?
– Makes market “too small” for two.
• Relationships with insurers, garages.
– Why hasn’t Enterprise formalized these?
Difficulties facing entrantEnterprise
• Causal ambiguity regarding incumbent
strategy
• Predicting incumbent’s response
– How does Hertz know how much “room”
Enterprise has to lower prices?
– Will entrant find it cheaper to accommodate?
• Duplicating Enterprise’s convenience
– Was Hertz really the natural entrant?
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