Placing an economic-based value on first-mover advantage: An examination of the effect of declining pioneer lead-times on the performance of first, second, and third market entrants

A firm that is first to enter the market for a specific product or service has commonly been referred to as a pioneer or first-mover (Lieberman and Montgomery 1988). "First-mover advantage" is an oft-cited principle for achieving superior business performance. Much of the previous research has indicated that product pioneers have enjoyed an advantage over later entrants, often manifested in the form of larger market share. The strategic importance of the first-mover phenomenon is witnessed by the consistent attention paid to it in the literature since the 1970s. Since the early eighties several scholars, including Cook (1985) and Lieberman and Montgomery (1988, 1998) have called for research to measure the first-mover advantage on an economic or financial basis. Surprisingly, there exists virtually no cross-sectional or time-series empirical research regarding the effect of entry order on business profit, even though reviews of the entry order literature have repeatedly pointed to profit implications as one of the key unanswered questions in this area of research. This dissertation attempted to address this void by placing an economic-based value on first-mover advantage. This was accomplished by utilizing event study methodology from the finance literature. Over a twenty year time-frame (1985-2004) this study, across 24 different industries, found that first-movers experienced average abnormal increases in company stock price following the announcement of a new product offering. However, the extent to which these gains were long-lasting depended largely upon how quickly competitors announced their entry into the market. Further, the study found that fist-mover lead-time has been steadily declining and that this decline has reduced the economic-based gains of first-movers to the benefit of both second and third market entrants. In addition, relative advertising intensity proved to be a key determinant of the economic-based performances of first, second, and third market entrants.