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

• Published date: 01 November 2019
• Author: Hakan Ozalp,Tobias Kretschmer
• DOI: http://doi.org/10.1111/joms.12389
• Date: 01 November 2019

© 2018 John Wiley & Sons Ltd and S ociety for the Advancement of Ma nagement Studies

Follow the Crowd or Follow the Trailblazer? The

Differential Role of Firm Experience in Product Entry

Decisions in the US Video Game Industry

Hakan Ozalp and Tobias Kretschmer

University of Leeds; LMU Munich

ABST RACT Firms take cues from their external env ironment under uncertainty a nd

imitate the actions of ot hers. However, a firm’s own experience may either substitute for

these external clues bec ause the fir m can evaluate uncertain situat ions more accu-

rately, or it may complement them because the f irm can act more successfully on the

external cues. We argue t hat the type of external cues determi nes which of the two

holds in the context of product entry decisions into market niches. If f irms observe a

large wave of entrants, ow n experience conveys more information t han the imprecise

signal of a mass of ot her firms . Conversely, if firms obs erve trai lblazers, i.e., highly

successful and in fluential product s in a niche, own experience can help fir ms develop a

strategy a s a fast follower in a growing niche. We expect the supporting role of own

experience in following tra ilblazers to be especially pronounced in niches that have not

been discovered by a large mass of ot her firms . We study and test our hypotheses in t he

context of the US PC video game industr y between 1991 and 2010 and find support for

both the substituti ve relationship between own experience and niche popul arity and

the complementary relationship of own exper ience and niche trailblazer s. However,

support for the complementary relationship is lim ited to less populated niches.

Keywo rds: product entry, inform ation-based i mitation, pre-entry experience,

trailblazers

INTRODUCTION

Which market niches do firms choose for product entry? The answer to this ques-

tion rests on the expectation of which niche will be most profitable for the firm.

Clearly, the profitability of a particular niche for a firm depends on the firm’s

Address for reprints: Hakan Ozalp, VU Univer sity Amst erdam, 1081 HV Am sterdam, Netherland s

(h. oza lp @v u .nl ).

Journal of Man agement Studi es 56:7 November 2019

doi :10.1111/j om s.12 38 9

Follow the Crowd or Follow the Trailblazer? 1453

© 2018 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

capabilities and how they match with the requirements for that niche. Firms will

typically base their assessment on prior experience in specific niches. However,

observing other firms’ behavior may also provide cues about a niche’s profitabil-

ity. The intuition is that the entry of other firms who may know about the viability

and profitability of a niche conveys valuable information about the niche. Firms

can also look to very successful products, or trailblazers, to take cues about which

niches are likely to be popular in the future. We combine both internal (expe-

rience-based) and external (information-based) drivers for product entry into

niches in an uncertain and dynamic market (Lieberman and Asaba, 2006).

Imitation is a key factor in many entry processes, including product entry into

market niches. Lieberman and Asaba (2006) identify two types of imitation – in-

formation-based and rivalry-based. In the former, firms imitate other firms’ ac-

tions in the belief that these have better information, whereas in the latter, firms

want to maintain competitive parity with close competitors. In uncertain mar-

kets, information-based imitation is more prevalent than rivalry-based imitation

(Semadeni and Anderson, 2010).

Information-based theories of imitation share a common logic: if firms are un-

certain about the profitability of an action, they observe the population of firms

and mimic their behavior (Bikhchandani et al., 1998; DiMaggio and Powell, 1983;

Haunschild and Miner, 1997).1 Firms considering product entry into a niche will

therefore interpret the entry behavior of other firms as a signal for the attractive-

ness of a niche (Greve, 2000), especially in the early phases of a niche.2

This basic intuition has been confirmed in many settings, but its relationship

to other key aspects of entry like experiential learning (Lieberman and Asaba,

2006), and imitation of successful innovations (products) under uncertainty

(Semadeni and Anderson, 2010) remains understudied. Experiential learning

has often been portrayed as a substitute to external information (Belderbos et al.,

2011; Guillen, 2002; Henisz and Macher, 2004), yet the previous experience of

the firm in a niche can also serve as absorptive capacity when taking cues from the

actions of others (Barkema and Schijven, 2008; Cohen and Levinthal, 1990). We

develop and test arguments on how firm experience, niche popularity (or ‘niche

density’)3, and the recent arrival of a trailblazer product act together to influence

firms’ product entry decisions into niches.

We hypothesize that prior experience in a niche can substitute for external in-

formation and the consequent mimicry. The intuition is that firms that are active

in a niche learn about consumer preferences in it and do not have to rely on cues

from the behavior of others. We also argue that the recent entry of a trailblazer in

a niche attracts additional entry by firms with prior experience in the niche, as that

experience can act as an absorptive capacity to facilitate learning from trailblazers

and help them be fast followers (Lee, 2009; Lieberman and Asaba, 2006; Markides

and Geroski, 2005). We posit that this effect is further strengthened if the niche is

relatively unpopulated, which puts an experienced firm in a position to follow be-

fore the bulk of competitors enter. Hence, we hypothesize that internal experience

acts as a substitute or as a complement to niche density in determining product