First Mover Advantage

FIRST MOVER ADVANTAGE (forthcoming in Palgrave Encyclopedia of Strategic Management)

In a business context, "first mover advantage" refers to the benefit enjoyed by a firm as the consequence of its early entry into a new market. This benefit pertains to economic profit; however, many studies focus on market share or survival, which are easier to measure. Although the term "first mover advantage" suggests that early entry is desirable, market pioneering is a high-risk strategy. The advantages of pioneering a new market are often offset by disadvantages. The question of whether on balance a "first mover advantage" exists in any specific context depends on characteristics of the emerging market and the entering firm. "First movers" often prove to be less successful than rivals that enter later, and established firms are frequently advised to track the market’s early development and pursue a "fast follower" strategy. (One commonly-cited example of a "fast follower" is Microsoft.)

The potential existence of first mover advantage raises the broader strategic question of the optimal timing of entry. Strictly speaking, a market has only one "first mover", but in practice, multiple firms are often identified as "first movers" or "pioneers". Such classification is not unreasonable, given that firms may enter the market more or less simultaneously, and in many cases the exact date of entry is not precisely defined. Firms that enter later in the evolution of the market are characterized as "followers" and may be further distinguished as "fast followers", "late followers", etc.

Many hundreds of articles have been published on the topic of first mover advantage, often seeking relatively simple prescriptions for managers or conclusive findings for researchers. Given the contingent nature of first mover advantage, broad generalizations have been elusive. Interpretive summaries of the literature can be found in numerous survey articles, including Golder and Tellis...