The Competitive Dynamics of Entrepreneurial Market Entry

The Competitive Dynamics of Entrepreneurial Market Entry

The Johns Hopkins University series on Entrepreneurship

Edited by Gideon D. Markman and Phillip H. Phan

Research on general market entry usually focuses on large enterprises. Often, however, small entrants can alter the competitive dynamics of an industry. This volume brings together the most prominent thought leaders and the best research on the asymmetric entrant-incumbent dynamics. The ideas presented offer a more nuanced perspective on how, when, where and with what consequences small, single-product firms enter markets that are dominated by large, multiproduct and multimarket incumbents.

Chapter 13: A Theory of Defense

Peter T. Gianiodis

Subjects: business and management, entrepreneurship, economics and finance, industrial economics

Extract

Peter T. Gianiodis INTRODUCTION Prevailing theory suggests that firms in general, and de novo ventures in particular, are adept at leveraging innovative capabilities when entering new markets (Audretsch, 1991; Chen et al., 2010). Firm survival is contingent upon developing and implementing the right set of competitive moves both prior to and subsequently entering markets. Researchers have highlighted several types of competitive moves that firms have employed to protect or improve market positions (Grimm & Smith, 1997; Ketchen et al., 2004). Specifically, research has demonstrated that competitive moves supporting various positions—cost leadership (e.g., scale and capacity), switching cost (e.g., pricing and advertising), tie-up (contracting and integration), and credible threat (e.g., signaling)—enable firms to achieve better performance (Chen et al., 2010; Lee & Ng, 2007; Lieberman & Asaba, 2006; Markman et al., 2009). These findings have been confirmed in varied empirical settings from airlines (Miller & Chen, 1996) to mutual fund companies (Makadok, 1998), and robotics (Katila & Chen, 2008), just to name a few. The message is clear; competitive moves can generate temporary advantages and provide firms with sufficient buffers in order to achieve preferable market positions (Chen et al., 2010). Yet despite these insights, the competitive dynamics literature leaves open several issues. Two are most pertinent to this inquiry. First, although theory suggests that the need to engage competitors is more likely in some markets than others (Markman et al., 2009; Thomas & D’Aveni, 2009; Yu & Cannella, 2007), research has tended to focus on established industries such as airlines, banking, beer, and hospitality. As...

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