December 19, 2005

Marvin Lieberman is a professor of PolicyLOS ANGELES - In 1988, UCLA Anderson Professor Marvin Lieberman and David Montgomery of Stanford published a paper entitled “First-Mover Advantages” in the Strategic Management Journal that launched a long and lively debate about the advantages and disadvantages of being the first firm in a market. In 1996, the authors received the Best Paper Prize by the Strategic Management Society recognizing the impact of their paper on the field. Nearly 20 years after Professor Lieberman began work on the paper, it is still commonly cited, debated and assigned to young scholars.

Professors Lieberman and Montgomery wrote a second paper on the topic in 1998, and Lieberman is now completing a third paper taking an empirical approach to the topic. But the original paper continues to be influential. One SMJ editor has noted, “It is hard to imagine a doctoral student not reading this paper at least once during their education.”

Professor Lieberman notes that the paper, itself, was a first-mover. The concept of first-mover advantage existed in the literature, but the paper carefully defined the concept and suggested its importance in a way that resonated with scholars and practitioners.

The paper took issue with the popular notion that the first firm to market always has an advantage. “There was a strong bias toward that view in the business world,” says Lieberman. But the paper suggests that first-mover advantages are not for everyone.

“It’s firm-specific,” says Lieberman. While some firms can develop a new product and bring it to market successfully, other firms are more suited as followers. In the paper, Sony is cited as a successful first-mover that historically has had the requisite innovation and marketing skills needed by a market maker. On the other hand, Matsushita is described as being more successful as a follower, which enables it to use its manufacturing resources.

Some followers, like Google, have been notably successful. “There were many search engines before Google,” notes Lieberman, “but they have a better mousetrap – at least for now.”

In the second paper on the topic, Lieberman and Montgomery provided a literature survey on the topic and developed the idea that successful first-movers typically have certain types of resources. “In a resource-based view of the firm,” explains Lieberman, “you can think of the firm as a collection of resources. A firm can have a competitive advantage if it has better resources or capabilities than other firms. In that sense, first-mover advantage is really about capabilities. In the second paper, I wanted to make a connection between the first-mover concept and the resource-based view of the firm.”

Professor Lieberman’s latest paper looks at first-mover advantage using data on firms that entered Internet-related markets during the 1990’s. With the rapid creation of new market spaces and a surge in IPOs, Lieberman saw a unique opportunity to study whether early entrants were more successful.

“On average, I do find first-mover advantage,” says Lieberman. “But what’s more interesting is that the market spaces where first-movers are successful are fairly specific. They tend to be markets where there are network effects. eBay for example, is a firm that enjoys network effects. Buyers want to be where sellers are, and sellers want to be where buyers are. If you can be the first to bring them together you can develop a network that will be very hard for anyone to take away.” The study also shows a first-mover advantage among firms such as travel brokers, ticket brokers, stock brokers, and mortgage brokers.

Early entrants also enjoy an advantage where there is some type of technology involved that can be protected by patents. “So firms like Amazon and Yahoo that have patents,” explains Lieberman, “tend to be more successful as measured by market value - which is the main measure I use in the paper.”

But there are other measures – such as survival. “Interestingly, there is no connection to survival,” says Lieberman. “A lot of very successful companies didn’t survive. They were bought up - in many cases at good prices. So it makes a difference how we measure success.”

Professor Lieberman’s latest working paper and his first two articles on first-mover advantage are available below.

"Did First-Mover Advantage Survive the Dot-Com Crash?" Working paper.

"First-Mover (Dis)Advantages: Retrospective and Link with Resource-Based View," (with David Montgomery), Strategic Management Journal, Vol. 19, No. 12, December 1998.

"First-Mover Advantages," (with David Montgomery). Strategic Management Journal, Vol. 9, Summer 1988.

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