Pioneer (Dis-)advantages in Markets for Technology

Abstract

This study sheds new light on first- and early-mover advantages in the context of product innovation. Research on this classic topic often assumes that each firm participates in the entirety of the innovation and commercialization process. However, a division of labor between innovative new entrants and incumbents with complementary assets is common in many industries. In such settings, small new entrants have the additional option to be acquired in a “market for technology.” Using data from the U.S. medical device industry, we find that pioneers “pave the way” for a new product type to reduce the technological and market risks, where the former is of paramount importance. Pioneers enjoy an early-mover advantage in the form of a higher likelihood of acquisition, with the disadvantage that they wait longer to be acquired. Therefore, to some extent, later movers can free ride on early-movers’ efforts.

Keywords: First-Mover Advantages, Markets for Technology, M&A, Technology Acquisition, Medical Devices