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    Pioneer (Dis-)advantages in Markets for Technology
    05 Nov 2018Working Paper Summaries

    Pioneer (Dis-)advantages in Markets for Technology

    by Moritz Fischer, Joachim Henkel, and Ariel Dora Stern
    When and how to enter a new market is central to firms’ innovation strategies, including in the medical device industry. The authors show how to evaluate early-mover advantage vs. disadvantage when the primary option to monetize an innovation lies in selling it in an intermediate “market for technology” rather than in a final product market.
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    Author Abstract

    This study sheds new light on first- and early-mover advantages. Research on this classic topic often assumes that each firm participates in the entirety of the innovation process and that all firms aim to monetize their innovations on product markets. However, a division of labor between innovative new entrants and industry incumbents, endowed with complementary assets, is common in many industries. Such settings are distinct because new entrants have the additional option to sell their innovation in a “market for technology” and may, therefore, seek acquisition rather than shepherding an innovation through the entire commercialization process. We argue that this binary outcome—i.e., success via acquisition—creates different opportunities and threats for new entrants and has important and novel implications for the following question: is it advantageous to be early to market? Using data from the U.S. medical device industry, we find that pioneer (dis-)advantages in a market for technology setting are similar to those typically seen in product markets but different in some important respects. In particular, pioneers must pave the way for a new product type in order to reduce the technological and market risks, where reducing technological risk is of paramount importance. As a reward, pioneers ultimately realize a higher likelihood of acquisition, but among acquired firms, early entrants wait longer for acquisition to happen. To a certain extent, therefore, later movers can free ride on early-movers’ efforts: although they are less likely to experience acquisition, acquisitions of later entrants happen more quickly.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: October 2018
    • HBS Working Paper Number: HBS Working Paper #19-043
    • Faculty Unit(s): Technology and Operations Management
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    Ariel D. Stern
    Ariel D. Stern
    Poronui Associate Professor of Business Administration
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