We have seen how a firm that enters the market first gains an advantage over potential rivals by…

We have seen how a firm that
enters the market first gains an advantage over potential rivals by moving
first. The first-mover firm may prevent entry by developing production
processes that lower its marginal cost, raising costs to potential rivals, or
getting an early start on learning by doing. Denstadli, Lines, and Grønhaug
(2005) found that early Norwegian discount supermarket entrants benefited from
long-lasting consumer perceptions that they had superior attributes compared
with later entrants. However, first movers do not always gain an advantage.
Sony pioneered modern smartwatches with its 2013 Sony Smartwatch but later lost
command of the market to the Apple Watch. In 2018, Apple had 80% of the U.S.
market and about 60% of the world market. The Apple Watch gained an advantage
because it had a large number of apps, most of which were created by
third-party developers of iPhone and iPad apps. Other successful late entrants
include Microsoft, which was a late entrant in the spreadsheet market, and
Amazon, which started its online retail business by selling books several years
after online book-selling pioneer Book Stacks Unlimited. Nonetheless, first
movers commonly have an advantage. Urban, Carter, and Gaskin (1986) examined
129 successful consumer products and found that the second entrant gained, on
average, only three-quarters of the market share of the pioneer and that later
entrants captured even smaller shares. Similarly, Porath (2018) found that
early entrants into pharmaceutical markets benefited by entering early, with
the first entrant having the largest market share advantage over later
entrants, followed by the second entrant, and so forth through the sixth
entrant.