First mover, last mover

The first mover theory refers to the competitive advantage a company earns by being the first to enter a specific market or industry. With this movement comes advantages and disadvantages. An advantage of being a first mover is the technological advantage through sustainable leadership in technology. If the firm is the first one to introduce the technology, it reaps the benefits of selling those products to consumers. It also leads the way with research and development and obtaining patents for its products. This advantage can also create barriers to entry, as few firms can compete profitably. A first mover may also be able to obtain scarce assets. The first mover gains control of the assets that already exist. If the firm has superior information, it may be able to purchase assets at market prices below those that come later in the evolution of the market. Again, the acquisition of scarce resources may limit the number of firms that can compete in the market. Being a first mover means paying less buyer switching costs that may arise from new suppliers, new software or computers, and training employees for new protocol or software. Late entrants have to pay more for these switching costs. Switching costs typically enhance the value of market share obtained early in the evolution of a new market. With being a first mover, a company does not have to compete with as many established products as a last mover. Being early into a market means that competition is not as fierce and the company can set industry standards and gain market share easier than if it was competing with firms already established in the industry. No brand reputation has been formed yet as well. With being a first mover come disadvantages as well. One of these disadvantages is late movers being ‘free-riders’ on the first movers investments in areas such as research and development and other areas. Late movers can also exploit employee screening and tap into skilled labor at

References: Lieberman, Marvin B. and Montgomery, David B. (Summer, 1988). First-Mover Advantages. Strategic Management Journal, Volume 9 (41-58)