Browsing by Author "Vandenbosch, Mark B."

Now showing 1 - 2 of 2
  • Thumbnail Image
    ItemOpen Access
    Disruptive Technologies: Explaining Entry in Next Generation Information Technology Markets
    (INFORMS, 2000-09) Nault, Barrie R; Vandenbosch, Mark B.
    The most difficult challenge facing a market leader is maintaining its leading position. This is especially true in information technology and telecommunications industries, where multiple product generations and rapid technological evolution continually test the ability of the incumbent to stay ahead of potential entrants. In these industries, an incumbent often protects its position by launching prematurely to retain its leadership. Entry, however, happens relatively frequently. We identify conditions under which an entrant will launch a next generation product thereby preventing the incumbent from employing a protection strategy. We define a capabilities advantage as the ability to develop and launch a next generation product at a lower cost than a competitor, and a product with a greater market response is one with greater profit flows. Using these definitions, we find that an incumbent with a capabilities advantage in one next generation product can be overtaken by an entrant with a capabilities advantage in another next generation product only if the entrant’s capabilities advantage is in a disruptive technology that yields a product with a greater market response. This can occur even though both next generation products are available to both firms. We also show that the competition may require the launching firm to lose money at the margin on the next generation product.
  • Thumbnail Image
    ItemOpen Access
    Eating Your Own Lunch: Protection Through Preemption
    (INFORMS, 1996-06) Nault, Barrie R; Vandenbosch, Mark B.
    Recent discussions of management practices among successful high-technology companies suggest that one key strategy for success is to ''eat your own lunch before someone else does." The implication is that in intensely competitive. or hyper competitive, markets, firm' with a leading position should aggressively cannibalize their own current advantages with next-generation advantages before competitors step in to steal the market. Given the pace of technological and other types of change. such strategy often requires creating next-generation advantages while the current advantages are still profitable- that 1s, trading current profits for future market leadership. We capture the tradeoff between a market leader's willing­ness to reap profits with its current set of advantage;, and its desire to maintain market leadership by investing in the next generation. Using a competitive model that determines the equilibrium launch time of a next generation advantage. we find that, in absence of lower launch costs for an entrant, the incumbent will be first to launch to maintain its market leadership. That is, regardless of the severity of penalties for being a follower in the next generation, it is optimal for the incumbent to preempt the entrant by launching early -even if the incumbent consequently loses money at the margin. We derive a straightforward condition to determine when an incumbent will make negative incremental profits from its investment in the next-generation advantage. The fact that the condition does not depend on the size of the incumbent\ investment costs indicates that the severity of competition. Rather than the costs of developing and introducing a next­ generation advantage, is what forces firms to cannibalize at a loss.