First-Mover Advantages

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not only for making a profit but also for self-achievement in the global network. Second, the development of the innovation is quite simple and easy in comparison with innovations for manufactured goods, which require huge investments in technology, and for services, which involve changes in the processes and human interactions.

Developers who engage in app development only need to pay the annual fee and learn a specific programming language in the free integrated development environment (IDE), such as Xcode and Eclipse, and then they can publish apps through app stores, where consumers can buy apps directly.

2.2 First-Mover Advantages

The first-mover advantages can be defined as the ability of early entries into markets to earn positive economic profits, and it is used here to discuss the benefits that an early entrant gains when releasing new products or services (Burnham et al. 2003).

Consolidating past studies (Lieberman at el. 1988; Varadarajan et al., 2007; Burnham et al. 2003; Urban, 1986) about first-mover advantages in the product and service industries shows that early entrants enjoy advantages that include technological leadership, resource preempting, lower switching costs, network externalities, and pricing advantages.

Technological leadership

Lieberman and Montgomery (1988) noted that first movers can gain advantages from sustainable in innovative technology. They considered two mechanisms: the

“learning” or “experience” curve and R&D patenting. First, in the standard learning-curve effect, the first movers can reduce unit production costs with cumulative experience, and thereby enjoy a long-term cost advantage in the physical market environment (Varadarajan et al., 2007). In addition, other studies have mentioned that the learning curve can create a substantial barrier to entry when learning can be kept proprietary (e.g., Spence, 1983). Second, first movers can enjoy advantages in the form of R&D or patent races through patenting or maintaining technology as trade secrets.

Actually, patent protection appears to be important only in some industries, such as pharmaceuticals, where imitation can be costly and the imitator must go through the same regulatory approval procedures as the innovating firm. Varadarajan et al. (2007) also noted that with the dynamic nature of the Internet-enabled market environment, the patented innovation process is more significant than the learning-curve effect. In

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addition to R&D and innovation in physical hardware, first movers also improve their managerial systems with innovative organizational forms. The first-mover advantages gained from organizational innovation are more durable than those from process or product innovation due to the slow diffusion of organizational innovation (Teece, 1980).

Resource preempting

First-mover advantages may stem from preemption of scarce assets that already exist (Lieberman et al., 1988). These assets could be physical resources or process inputs, or they could be related to positioning in space, such as geographic space, product space, etc. With superior information, first movers can achieve a competitive cost advantage by purchasing preemptive assets—e.g., natural resource deposits and prime retailing or manufacturing locations—below prices that would be faced by potential competitors.

Some studies mentioned that first movers can also gain advantage from preempting spatial resources, including geographic space, product characteristic space, shelf space, etc. In many markets, only a limited number of profitable firms can survive, so first movers try to establish positions in geographic or product space to limit the amount of available space for later entrants (Varadarajan et al., 2007; Schmalensee, 1978). For instance, prescient banks would have more opportunities to preempt the prime locations for placing ATMs at prices below those that would prevail for later entrants. However, some research found that it is difficult for first movers to gain advantage successfully through preemption of geographic space in industries such as cement and newspapers (Johnson and Parkman, 1983; Glazer, 1985), where competitors have similar technology and opportunities to enter.

Switching costs

First movers can also gain advantages from buyers’ switching costs (Lieberman and Montgomery, 1988). Switching costs are defined as “One-time costs that consumers associate with the process of switching from one provider to another”

(Burnham et al., 2003). Switching costs include uncertainty costs, evaluation costs, set-up costs, learning costs, etc. First, evaluation costs stem from buyers' initial transactions or investments in some ancillary products (Lieberman et al., 1988; Burnham, 2003).

These ancillary products, such as software or after-sale service, will cost consumers extra time and other resources, so consumers seek new suppliers or products. Second, set-up costs stem from the process of getting acquainted with an alternative product or setting up a new product for initial use (Burnham et al, 2003).Third, learning costs are

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the extra effort to learn about the new products. Consumers are reluctant to make an effort to switch from a current brand’s products to another brand’s product after they are accustomed to the products that they are currently using (Lieberman et al., 2007;

Burnham, 2003). Fourth, uncertainty costs stem from the buyers’ insufficient information about product quality. Under conditions of information asymmetry, buyers also do not have enough knowledge about the performance of competitive products (Varadarajan et al., 2007). They are thus willing to choose products that have performed satisfactorily since they were first encountered. With switching-cost advantages, late entrants have to invest extra resources to attract consumers from the early entrants.

Network externality

First-mover advantages can stem from network externalities (Varadarajan et al., 2007), which occur when a product, industry standard, or service becomes more influential and valuable to its current and potential users as the size of the network increases (Katz et al., 1985). Network externalities are considered a better potential source of first-mover advantages in Internet-enabled markets, and in technology or communications-related industries, than in physical markets (Varadarajan et al., 2007).

Under the traditional constraint of a physical market, it is inconvenient for buyers and sellers to congregate in a market exchange due to the factor of distance between sellers and buyers. The effect of network externalities may be affected by the distance between buyers and sellers. However, the constraints do not exist in electronic market exchanges.

Instead, spatially separate transactions are allowed in Internet-enabled markets.

Evidence has shown that sellers and buyers are more likely to choose a market exchange that attracts most of counterparties. In addition, competition between network externalities can be specific in different categories of products, technologies, or market exchanges (Varadarajan et al., 2007). By entering a market at an early stage, first movers acquire differentiation advantage by seizing opportunities to nurture a large user base before potential competitors’ entry.

Pricing advantage

Pricing strategies also play an important role in bringing advantages to first movers.

Theoretical research suggests that consumers will be willing to purchase the products at higher price due to established brand loyalty or the uncertainty risk of purchasing alternative products (Urban, 1986). A strong brand loyalty will be established once consumers are accustomed to the first brand that performed satisfactorily. Furthermore, searching for information related to a superior brand requires considerable time and

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effort on the part of consumers, and such efforts seldom create enough benefits.

Because of the lack of information, consumers will not be willing to make a switching decision even if they have to pay more for the brands that they have been accustomed to using. In this case, later entrants must offer more price reductions to attract consumers to make a switching decision to try the alternative products. In addition, while first movers enjoy lower product costs, which are gained from the experience-curve effect or the preemption of resources, they can offer products with more competitive prices than those offered by later entrants. In this scenario, later entrants also need to concentrate on attracting consumers with more outstanding features.