Leader's (Dis)Advantage

By: Peter J. Coughlan

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Synopsis: Provides a rigorous description of the economic dynamics that may produce inherent advantages for large and/or first-mover firms within an industry, as well as those factors that may result in disadvantages for such leading firms. The leader advantages discussed include both size advantages, such as economies of scale and scope, network effects, and learning effect, as well as timing advantages, such as preemption, reputation effects, buyer switching costs, and patents or institutional barriers. The leader disadvantages analyzed include pioneering costs, demand uncertainty, technological uncertainty, and incumbent inertia. Throughout the note, the experiences of Intel Corp., the world's largest manufacturer of semiconductors, are used to provide specific examples of the causes and consequences of leader advantages and disadvantages.