First-Mover Advantage Through Distribution: A Decomposition Approach

Abstract

Whereas the extant literature on entry-order e¤ects establishes that …rst entrants often earn higher market shares ("market-share advantage"), the literature on distribution suggests increased distribution has a positive e¤ect on sales. Can distribution help us better understand entry-order e¤ects on market shares? This paper examines how the …rst entrant in a geographical market achieves a market-share advantage through distribution. For this purpose, I propose a simple method of decomposing sales into physical distribution and sales performance. The data come from a manually collected panel on six major Japanese convenience-store chains from 47 geographical markets between 1991 and 2007. Using an instrumental variable approach to deal with the potential endogeneity of entry order, I …nd the market-share advantage for the …rst chain brand is positive. Speci…cally, the physical distribution, measured by the number of outlets in a market, drives most of the advantage. This paper further …nds the density of own outlets is nonmonotonically related (inverted U) to sales performance per outlet, suggesting dynamic outlet expansion faces a trade-o¤ between business-stealing e¤ects within a chain ("cannibalization") and advertising e¤ects through repetition.

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