First-Mover Advantage through Distribution: A Decomposition Approach

66 Pages Posted: 5 Feb 2013 Last revised: 15 Apr 2017

See all articles by Mitsukuni Nishida

Mitsukuni Nishida

Johns Hopkins University - Carey Business School

Date Written: April 14, 2017

Abstract

Whereas the extant literature on entry-order effects establishes that first entrants often earn higher market shares ("market-share advantage"), the literature on distribution suggests increased distribution has a positive effect on sales. Can distribution help us better understand entry-order effects on market shares? This paper examines how the first entrant in a geographical market achieves a market-share advantage through distribution. For this purpose, I propose a simple method of decomposing sales into physical distribution and sales performance. The data come from a manually collected panel on six major Japanese convenience-store chains from 47 geographical markets between 1991 and 2007. Using an instrumental variable approach to deal with the potential endogeneity of entry order, I find first entrants have a positive market-share advantage over later entrants. Specifically, the physical distribution, measured by the number of outlets in a market, drives most of the advantage. Meanwhile, the positive effect on sales performance for the first chain brand becomes non-existent when I control for the outlet density. This paper further finds the density of own outlets is nonmonotonically (inverted U) related to sales performance per outlet, suggesting dynamic outlet expansion faces a trade-off between the business-stealing effect within a chain ("cannibalization") and the advertising effect through repetition.

Keywords: first-mover advantage; pioneering advantage; order of entry; market share; distribution; convenience store; chain; retailing; IV estimation

JEL Classification: D40, L10, L81

Suggested Citation

Nishida, Mitsukuni, First-Mover Advantage through Distribution: A Decomposition Approach (April 14, 2017). Available at SSRN: https://ssrn.com/abstract=2212215 or http://dx.doi.org/10.2139/ssrn.2212215

Mitsukuni Nishida (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://https://sites.google.com/site/mitsukuninishida/

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