Competitor see, competitor do: incumbent entry in new market niches

Abstract

The ability to keep up with changing technology is critical for a company's long-term survival. However, companies have to balance the risk of rushing into new areas and potentially cannibalizing their existing business against the risk of missing the emerging market. This paper investigates when incumbents enter into new market niches created by technological innovation. We argue that market conditions and company-specific characteristics do not suffice to explain incumbents' entry timing, but that entry is a contagious process. Our results demonstrate that incumbents are more likely to respond to innovations in their industry when their counterparts do so. In particular, we show that incumbents are affected by the entry of firms that are similar in size and resources. When a highly similar company enters the new market, it raises the probability that the company enters itself beyond levels based solely on the attractiveness of the market.