First-Mover Advantage

by

Gwendolyn Lee

• LAST REVIEWED: 22 August 2023
• LAST MODIFIED: 22 August 2023
• DOI: 10.1093/obo/9780199846740-0215

Introduction

First-mover advantage (FMA) is a topic that has accumulated decades of research across the fields of strategic management, marketing, and economics. FMA research addresses a fundamental and important question: Firms recognize entry opportunities and often have some ability to choose the timing of their entry. Given the characteristics of an emerging new market, should a firm with a given set of capabilities choose to enter early or delay for some period of time? The research has managerial implications for a broad range of outcomes, including value creation, firm profit, market share, business survival, and industry structure. The vast literature has contributed to an improved understanding about the conditions under which first movers have an advantage or disadvantage, the possible means by which first movers gain an advantage, and why some firms are more likely to move first. Topics in related areas such as innovation imitation, disruptive innovation, and management of technology have benefited from FMA research.

General Overviews

A general overview of FMA is presented in Lieberman and Montgomery 1988, Lieberman and Montgomery 1998, and Lieberman and Montgomery 2013. Lieberman and Montgomery 1988, a seminal prize-winning paper, surveyed the theoretical and empirical literature on mechanisms that confer advantage and disadvantages on first-mover firms. The authors define FMA as “the ability of pioneering firms to earn positive economic profits (i.e., profits in excess of the cost of capital). First-mover advantages arise endogenously in a multi-stage process. In the first stage, some asymmetry is generated, enabling one particular firm to gain a head start over rivals. This first-mover opportunity may occur because the firm possesses some unique resources or foresight, or simply because of luck. Once this asymmetry is generated, a variety of mechanisms may enable the firm to exploit its position; these mechanisms enhance the magnitude or durability (or both) of first-mover profits” (p. 41). Lieberman and Montgomery 1998 provides a unified conceptual framework and critical assessment of the FMA literature. The authors propose forging links between FMA and the complementary body of research on the resource-based view of the firm, which can aid the design of more sophisticated studies on the timing of entry. They point to the determinants of entry order and lead times as an important issue for future research to study heterogeneous firms across diverse market environments. They suggest more research is needed on the strategic choices that pioneers and followers should make under different environmental conditions. Lieberman and Montgomery 2013 maintains that the primary impediments in FMA research arise from problems and inconsistencies in the design of empirical studies. The authors submit four sets of conundra relating to the definition and measurement of FMA. First, they pose questions about the basic definition of FMA. The field still does not have agreement on operational definitions of key concepts and categories. Then, they ask: Over what period of time must superior performance be sustained to constitute FMA? Next, they examine how to define the initial start date of a market and how finely markets should be divided for purposes of identifying order of entry. Finally, they revisit the well-worn topic of sample selection biases, raising an issue that has largely been ignored by researchers to date. Lieberman and Montgomery 2013 points out that many of the impediments pertain to issues that the authors raised decades earlier (Lieberman and Montgomery 1988). Many have still not been adequately addressed. Some may be impossible to overcome, which raises questions about the ultimate extent of progress that can be achieved by researchers in this area. They further note that they “have a strong preference for the term, ‘entry timing effects’ rather than ‘first-mover advantage and disadvantage’” (p. 317).

• Lieberman, Marvin B., and David B. Montgomery. “First‐Mover Advantages.” Strategic Management Journal 9.S1 (1988): 41–58.

  DOI: 10.1002/smj.4250090706

  This paper received the Best Paper Prize, which was established by co-sponsors Wiley and the Strategic Management Society to honor substantial work published in the Strategic Management Journal. The paper has been cited more than 5,000 times according to Google Scholar citations, as of October 2021.

• Lieberman, Marvin B., and David B. Montgomery. “First‐Mover (Dis)Advantages: Retrospective and Link with the Resource‐Based View.” Strategic Management Journal 19.12 (1998): 1111–1125.

  DOI: 10.1002/(SICI)1097-0266(1998120)19:12<1111::AID-SMJ21>3.0.CO;2-W

  This paper reflects on the authors’ prize-winning paper, “First-Mover Advantages,” provides an update of the literature, and suggests opportunities for continuing research.

• Lieberman, Marvin B., and David B. Montgomery. “Conundra and Progress: Research on Entry Order and Performance.” Long Range Planning 46.4–5 (2013): 312–324.

  DOI: 10.1016/j.lrp.2013.06.005

  This paper is one of the articles in the special issue on entry timing strategies, edited by A. Fosfuri, A., G. Lanzolla, G., and F. Suarez.