Advantages and disadvantages of being a first mover in an industry

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In business, being the first company to sell a new product may provide long-lasting benefits or competitive advantages. Most researchers use the term, "first mover" to refer to the first company to enter a market. First movers are also called market pioneers. The benefits of pioneering may result in standing out in the market and higher-than-average profitability over time. There are several reasons why these benefits may come to be but research has shown that being the first mover is not necessarily advantageous. Sometimes there are even first-mover disadvantages, where companies that enter a market later can achieve greater results to those obtained by the first-mover firm.

Some advantages include the idea early entrants can lead other companies in their understanding and use of technology in ways that are hard for later entrants to copy. One way this can happen is that the early entrant learns how to reduce the costs of producing a product through accumulated experience in producing it. Unless later entrants can learn how to produce at these lower costs faster than the first entrant did, the first entrant will have a cost advantage. For example Procter & Gamble developed an advantage in disposable diapers in the United States. However, researchers have found that in most industries it is fairly simple for late movers to learn new technology quickly and overcome the lead held by the first-mover firm.

Another way that a first mover may benefit from technology leadership is by applying for patents for their technology to try to prevent other companies from copying it. Patents appear to protect first-mover advantages in some industries, such as pharmaceuticals. In many industries, though, later movers can invent their own technology quickly enough so that the first-mover's patent protection becomes irrelevant. A stronger advantage from technology leadership arises when the first mover can establish their product as the industry standard, making it more difficult for followers to gain customer acceptance.

The second type of first-mover benefit is the ability to control a resource necessary for the business that is better than ...