Strategic Waiting: When Does it Make Sense?

Abstract

Our analysis shows that in entering a new market a firm should not just focus its attention solely on the prize that a market awards to a pioneer or the trade-off between first mover advantages and disadvantages. It should also consider the adverse consequences of being a laggard. Thus, in a competitive context, an optimal decision may call for a firm to strive to become a market pioneer when pioneering advantages to the firm are minimal or to be a prudent laggard when pioneering advantages to the firm are substantial. This is because a firm may or may not have the ability to overcome late mover disadvantages. We characterize different equilibrium outcomes for different market conditions. Our analysis also sheds some new light on past empirical research on pioneering advantages. Since firms may race into a market solely to avoid market penalties of a laggard, pioneers need not be the firms that are best positioned to establish, exploit, and maintain pioneering advantages. Therefore, it is not surprising that a large percentage of pioneers fail and persistent market share advantages for pioneers are quite small.

JEL Classification: L11, L21, D21