Follow the Crowd or Follow the Trailblazer? The Differential Role of Firm Experience in Product Entry Decisions in the US Video Game Industry

Abstract

Firms take cues from their external environment under uncertainty and imitate the actions of others. However, a firm’s own experience may either substitute for these external clues because the firm can evaluate uncertain situations more accurately, or it may complement them because the firm can act more successfully on the external cues. We argue that the type of external cues determines which of the two holds in the context of product entry decisions into market niches. If firms observe a large wave of entrants, own experience conveys more information than the imprecise signal of a mass of other firms. Conversely, if firms observe trailblazers, i.e., highly successful and influential products in a niche, own experience can help firms develop a strategy as a fast follower in a growing niche. We expect the supporting role of own experience in following trailblazers to be especially pronounced in niches that have not been discovered by a large mass of other firms. We study and test our hypotheses in the context of the US PC video game industry between 1991 and 2010 and find support for both the substitutive relationship between own experience and niche popularity and the complementary relationship of own experience and niche trailblazers. However, support for the complementary relationship is limited to less populated niches.

The Who, Where, What, How and When of Market Entry

“…The paper by Ozalp and Kretschmer () studies product entry into market niches building on information‐based imitation theory. Their research question (how do firms enter market niches and which niches do they enter specifically?)…”

Sustainable Market Entry Strategy under a Supply Chain Environment

“…This paper can also be related to the literature on new technology industries' entry [8][9][10][11][12][13][14][15][16][17][18][19][20][21][22][23][24][25][26][27]. Yoo and Lee [8], when facing the Internet channel as a strategic choice for enterprises to enter the market, discussed how Internet channels affect the income of other channels, and analyzed the factors that influence Internet channels when entering new markets.…”

“…Makarevich and Kim [11] considered the impact of different contracts on firms' entry decisions under the uncertain factors of an enterprise focusing on a new market. Ozalp and Kretschmer [12] focused on the US recording industry and analyzed the interactive impact of the industry's most popular revenue-sharing contract on incumbents and competitors. Lee et al [13] studied the software system industry and analyzed the risks and opportunities faced by complementary products in market entry.…”

Anchors in Rough Seas: Understanding Category Spanning as a Source of Market Coordination

“…However, when a large majority of categories in markets show blurred boundaries as a consequence of widespread spanning (Pontikes and Hannan, 2014), producers search for other cues to bypass potential failures and match consumers' preferences (see March and Simon, 1958). The commercial success of existing offerings acts as a strong market signal for producers because it resolves market uncertainty (Lieberman and Asaba, 2006); imitating successful products thus proves a conservative strategy to capture value (Banerjee, 1992;Ozalp and Kretschmer, 2018;Strang and Macy, 2001). This argument applies not only to focused products but also to spanning products (Zhao et al, 2018).…”

“…From the producer side, we argue that the commercial success of spanning products boosts mimicry . In facing market uncertainty, producers avoid oversights by drawing on the success of competitors (Banerjee, 1992;Haveman, 1993;Lieberman and Asaba, 2006;Ozalp and Kretschmer, 2018;Strang and Macy, 2001), even when doing so implies spanning. Consequently, producers release offerings that also imitate spanning products when they appear successful.…”