The conceptual framework of Varadarajan, Yadav and Shankar (JAMS, 2008) proposes that the classic sources of first-mover advantage (FMA) — network externalities, switching costs, innovation-based technological leadership, asymmetry in consumer information and consumption experience, and preemption of spatial resources and capacity — change strength systematically when markets are Internet-enabled (IME) rather than physical (PME), and that product form — information products in digital form versus information products in analog form and non-information products — moderates several of these changes. It advances two sets of comparative propositions, one over the six FMA sources and one over the moderating effect of product form, but offers no empirical test, and it closes with a five-direction research agenda: observable-measure validation, IME-appropriate measurement and datasets, contextual moderators beyond product form, mechanisms of late-mover advantage in IME settings, and boundary conditions delimiting when each proposition holds. No existing study executes the comparative IME-versus-PME test or the product-form moderation, and adjacent work under different framings leaves the central question open. The problem is to empirically delimit which FMA sources strengthen, weaken, or persist across market environments and product forms, with measurement approaches adequate to IME data conditions.

Background

First-mover advantage (FMA) denotes the durable competitive benefit a firm gains by being the first significant entrant into a new product or market category. The concept was formalized by Lieberman and Montgomery (1988), who attributed FMA to three broad mechanisms: leadership in product and process technology, preemption of scarce assets (such as retail shelf space, prime locations, or supplier capacity), and buyer switching costs combined with buyer choice under uncertainty. A network externality exists when a product's value to each user grows with the total number of users, so an early entrant's installed base (its cumulative stock of customers) becomes a self-reinforcing barrier; switching costs are the economic or learning burdens a customer bears when changing suppliers. Most of the original FMA evidence came from physical-market environments (PMEs): consumer packaged goods, industrial equipment, pharmaceuticals. An Internet-enabled market environment (IME) is one in which the Internet materially conditions how products are created, priced, promoted, and distributed, and in which firms have access to fine-grained, dynamic transaction and usage data. Varadarajan, Yadav and Shankar (2008) asked which FMA mechanisms survive that shift. Their framework distinguishes six sources of FMA and advances two sets of comparative propositions: the first concerns the sources that can be expected to have a greater versus lower effect in the IME relative to the PME, and the second concerns the moderating effect of product form, contrasting information products in digital form with information products in analog form and non-information products. Under the first set, in IMEs, (i) network externalities become a stronger source of FMA than in PMEs (stronger still for digital information products, and for network benefits rooted in technological compatibility rather than social-group access); (ii) switching costs that are not contractual (for example, learning costs and data-lock-in rather than enforceable contracts) become stronger; (iii) technological leadership and multi-faceted innovation become stronger; while (iv) asymmetry in consumer information and consumption experience, (v) preemption of spatially-defined resources, and (vi) preemption of installed capacity relative to minimum efficient scale (the lowest output at which unit costs are minimized) become weaker sources of FMA than in PMEs. Under the second set, the framework proposes that product form moderates several of these differences, which are expected to be more pronounced for information products in digital form than for information products in analog form and non-information products. The authors explicitly flag that these are untested conceptual propositions: validating them requires observable measures (for example, combining firm-level hard data such as sales, market share, installed base, and profits with survey-based measures of perceived switching costs and information asymmetry), and IME settings pose distinctive measurement problems because transaction and usage data are proprietary and fast-moving. They further call for research on contextual moderators beyond product form (firm heterogeneity in capabilities, standards-setting and regulation, demand uncertainty), on the mechanisms behind late-mover advantages in IMEs (economies of scope, learning from pioneers' mistakes, freemium and trial models for digital products — a free basic version monetized through paid upgrades, and time-limited free trials), and on boundary conditions — for instance when industry standards are set externally or when minimum efficient scale changes over time. Understanding entry timing in technology markets matters practically: platform operators, app developers, and digital service providers face entry-timing decisions whose payoff structure the classic PME-based FMA literature may misdescribe.

Problem Statement

Empirically delimit the sources of first-mover advantage across market environments, as posed by Varadarajan, Yadav and Shankar (2008): with observable measures adequate to IME data conditions and a research design that admits comparison between Internet-enabled market environments (IMEs) and physical market environments (PMEs), determine whether (i) network externalities, (ii) consumers' non-contractual switching costs, and (iii) technological leadership and multi-faceted innovation are stronger sources of first-mover advantage in IMEs than in PMEs, and whether (iv) consumer information and consumption-experience asymmetry, (v) preemption of spatially-defined resources, and (vi) preemption of installed capacity relative to minimum efficient scale are weaker, as the framework's first set of propositions predicts, delimiting the conditions under which each predicted difference holds or fails. Empirically assess, in the same comparative framework, the framework's second set of propositions on the moderating effect of product form, contrasting information products in digital form with information products in analog form and non-information products, delimiting the conditions under which each predicted product-form moderation holds or fails. The paper's broader research agenda — contextual moderators beyond product form (firm heterogeneity in capabilities and learning, standards-setting and regulation, demand uncertainty), the mechanisms of late-mover advantage in IME settings (economies of scope, learning from pioneers' mistakes, freemium and trial economics for digital products), and further boundary-condition analyses — situates this comparison within the wider research landscape that the framework leaves open.

References

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