Early entrants can secure durable advantages through pre-emption, switching costs and learning, though the advantage is conditional and frequently absent.
Lieberman and Montgomery set out the mechanisms in 1988 and the conditions under which each holds. The popular version dropped the conditions. Where imitation is cheap, where the technology is unsettled, or where the pioneer must educate a market that a follower then serves, moving first is a cost rather than an advantage.
In practice
- A firm that opened the category and exited it is absent from every study of who wins categories.
- A second entrant learns from the first's mistakes at none of the first's expense.
- Possible explanations
- The proposed mechanisms are pre-emption of scarce assets, buyer switching costs, and learning that lowers cost faster than a follower can match.
- In its favour
- Each mechanism is real where its conditions hold, notably where switching costs are high or a resource can be locked up early.
- Against it
- Survivorship inflates the apparent advantage, since failed pioneers are missing from the samples, and where imitation is cheap and the technology unsettled, fast followers frequently win. The authors themselves cautioned against the popular reading.
- Standing
- The authors themselves later cautioned against the popular reading. Survivorship inflates the apparent advantage, since failed pioneers are absent from the samples, and fast followers often do better.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money