Resource title

Sustainable pioneering advantage: at what cost?

Resource image

image for OpenScout resource :: Sustainable pioneering advantage: at what cost?

Resource description

In this research we investigate the impact of pioneering on profit, as well as on the underlying components of profit, that is, price and average cost. Consistent with previous theoretical and empirical research we hypothesize that pioneers have a sustainable demand( price or market share) advantage. Prior theoratical end empirical work that examines the effect of pioneering on cost is far more ambiguous. With respect to overall average costs, we conjecture existence and knowledge of a pioneering-induced demand advantage leads pioneering firms to compete away the demand-side rents. That is, firms spend more money, less efficiently, to win the race to entry and the ensuing demand-side premium. This logic leads use to hypothesize, on average, both higher costs and no sustainable long-term profit advantage for pioneering firms. We first test these hypotheses in the setting of consumer goods. We then examine the robustness of these findings across industry settings. Finally, we examine conditions where we hypothesize the possibility of a positive pioneering-profitability relationship. In empirically testing our predictions we address an issue of conceptual and methodological interest. That is, wether the entry timing choice should be modeled as exogenous or endogenous. Because order of entry is itself a firm fixed effect, traditional differencing approaches that control for omitted fixed effects cannot be applied. Instead, we use the instrumental-variable estimation procedure developed by Hausman and Taylor (1981) and extended by others. Our findings indicate that, on average, pioneers have no long-term profit advantage. In particular, pioneering provides a price advantage, but this advantage is more than offset by higher average costs. This finding of no proft advantage due to pioneering, per se, holds both for consumer and industrial goods. However, we do find some conditions where we show a positive relationship between pioneering and profitability. Our results also indicate that entry timing is endogenously determined and that failure to account for the endogeneity of the entry timing decision of wheter to pioneer of follow leads to significantly biased results.

Resource author

Resource publisher

Resource publish date

Resource language


Resource content type


Resource resource URL

Resource license

Copyright INSEAD. All rights reserved