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Market Entry (Factors influencing optimal timing of entry (How certain are…
Market Entry
Factors influencing optimal timing of entry
How certain are costumer preferences?
How much improvement does innovation provide over previous solutions?
Does innovation require enabling technologies and are these technologies sufficiently mature?
Do complementary goods influence the value of the innovation, and are they sufficiently available?
How ist he threat of competitive entry?
Are there increasing returns to adoption?
Can the firm withstand early losses?
Does the firm have resources to accelerate market place?
Is the firm's reputation likely to reduce the uncertainty of costumers, suppliers and distributors?
Why dominant designs are selected?
Increasing returns to adoption
when technology becomes more valuable the more is adopted -> learning effects and network externalities
the learning curve: as a technology is used, producers learn to make it more effective and efficient
Prior Learning and absorptive Capacity
firms prior experience influences its ability to recognize and utilize new info, called absorptive capacity
use of particular technology builds knowledge base about that technology
the knowledge base helps firms use and improve the tech
=> techs adopted earlier become better developed, so others can't catch up
network externalities; benefit from using a food increases with the number of there users of the same good
common in industries that are physically networked, e.g. railroads, telecommunications
also arise then compatibility and complementary goods are important; e.g. Windows ...
tech with large installed base attracts developers of complementary goods, which again attracts users -> self-reinforcing cycle
Government regulation: st. consumer welfare benefits from having one single dominant design -> standards emerge (e.g. NTSC as color standard in television broadcasting)
natural monopolies: firms supporting winning technologies earn huge rewards; others may be locked out
Multiple Dimension of Value
value of technologies often influenced by
tech's stand-alone value
the functions the tech enables customers to perform
aesthetic qualities
its ease of use
network externality value
size of the tech's installed base-> direct network effects
the availability of complementary goods-> indirect network effects
=> tech can have significantly more stand-alone functionality but offer less overall value due to smaller installed base or poor amount of complementary goods (e.g. NEXT Computer)
to successfully overthrow an existing dominant tech
dramatic tech improvement e.g. video game consoles, it has taken 3X performance of incumbent
compatibility with existing installed base and complements
subjective (perceptions and expectations) information can matter as much as objective (actual numbers) information
when costumer requirements for network externality value are satiated at lower levels of market share, more than one dominant design may thrive
Should government intervene when network externality creates natural monopoly?
network externality benefits to costumers rise with cumulative market share
potential for monopoly costs to consumers (price gouging, restricted product variety , etc.) also arise with market share... see p.24
Timing of entry
3 categories
First movers are first entrants to sell a new product/service category ("pioneers")
Early followers are early to market but not first
Late entrants do not enter the market until product begins to penetrate the mass market or later
PRO first mover
brand loyalty and technological leadership
preemption of scarce assets
exploiting buyer switching costs
reaping increasing returns advantages
CON first mover
high R&D expenses
undeveloped supply and distribution channels
immature enabling technologies and complements
uncertainty of costumer requirements
Strategies to improve timing options
firms must be early or quickly in developing the inovation
a firm with fast-cycle development process can be early and still adapt its innovation depending on demand
can reap both first and second-mover advantages