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Pioneer (Dis-)advantages in Markets for Technology

by Moritz Fischer, Joachim Henkel, and Ariel Dora Stern

OVERVIEW — When and how to enter a new market is central to firms’ innovation strategies,
including in the medical device industry. The authors show how to evaluate early-mover
advantage vs. disadvantage when the primary option to monetize an innovation lies in selling it
in an intermediate “market for technology” rather than in a final product market.


This study sheds new light on first- and early-mover advantages. Research on this classic topic
often assumes that each firm participates in the entirety of the innovation process and that all
firms aim to monetize their innovations on product markets. However, a division of labor
between innovative new entrants and industry incumbents, endowed with complementary
assets, is common in many industries. Such settings are distinct because new entrants have the
additional option to sell their innovation in a “market for technology” and may, therefore, seek
acquisition rather than shepherding an innovation through the entire commercialization process.
We argue that this binary outcome—i.e., success via acquisition—creates different opportunities
and threats for new entrants and has important and novel implications for the following
question: is it advantageous to be early to market? Using data from the U.S. medical device
industry, we find that pioneer (dis-)advantages in a market for technology setting are similar to
those typically seen in product markets but different in some important respects. In particular,
pioneers must pave the way for a new product type in order to reduce the technological and
market risks, where reducing technological risk is of paramount importance. As a reward,
pioneers ultimately realize a higher likelihood of acquisition, but among acquired firms, early
entrants wait longer for acquisition to happen. To a certain extent, therefore, later movers can
free ride on early-movers’ efforts: although they are less likely to experience acquisition,
acquisitions of later entrants happen more quickly.