First-mover advantage or
FMA is the advantage gained by the initial occupant of a market segment. This advantage may stem from the fact that the first entrant can gain control of resources that followers may not be able to match.
[1] Sometimes the first mover is not able to capitalise on its advantage, leaving the opportunity for another firm to gain
second-mover advantage.
FMA is the sometimes insurmountable advantage gained by the initial or “first-moving” significant occupant of a new market segment. This advantage may stem from the fact that the first entrant can gain control of resources that followers may not be able to match. Originally made apparent by the ever booming Internet phenomenon, it has recently been on the decline due to the recent economic situation. It is important to note that the first-mover advantage refers to the first significant company to move into a market, not merely the first company. In order for a company to try and become a first-mover that company needs to figure out if the overall rewards outweigh the beginning/underlying risks. Sometimes first-movers are rewarded with huge profit margins and a monopoly like status. Other times the first-mover is not able to capitalize on its advantage, leaving the opportunity for other firms to compete effectively and efficiently versus their earlier entrants. These individuals then gain a second-mover advantage.
First-mover advantages can arise from three primary sources. Each category is then separated into a variety of different other mechanisms. All mechanisms are theoretical and assume that other competitors trying to merge into the market are being exploited and overpowered by the first-mover company. All other things equal, the following are the three primary sources of first-mover advantages.[2]
The first of the three is technological leadership. A firm can gain FMA when it has had some sort of upper-handed breakthrough in its research and development (R&D) resulting from a direct breakthrough in technology. A learning curve can provide sustainable cost advantage for the early entrant if learning can be kept proprietary and the firm can maintain leadership in market share. The diffusion of innovation can diminish the first-mover advantages over time, and can be triggered via workforce mobility, publication of research, informal technical communication, reverse engineering, plant tours, etc. R&D expenditures can also provide technological leadership. The technological pioneers can retain their advantage if they protect their R&D through patents or if they successfully keep them as trade secrets. However in most industries patents confer only weak protection, are easy to invent around or have transitory value given the pace of technological change. With their short life-cycles patent-races can actually prove to be the downfall of a slower moving first-mover firm.[2]
