Cascading failure: How legitimacy unravels in nascent industries

Abstract

Emerging industries depend on legitimacy, the collective perception that a new sector is appropriate, credible, and desirable enough to attract resources and grow. While prior research emphasizes legitimacy building, far less is known about how legitimacy collapses in nascent sectors. Studies that do examine legitimacy collapse have largely focused on established industries, leaving its dynamics in emerging fields underexplored. Drawing on a cognitive and institutional entrepreneurship perspective, this article theorizes the process of legitimacy collapse, identifying five triggers of collapse: hype and unmet expectations, technological failures, ethical controversies, regulatory crackdowns, and economic downturn. Using illustrative cases, we show how these triggers reshape media narratives and cognitive frames, producing negative spillovers across ventures. Legitimacy loss can stall or dissolve entire industries, though in some cases it prompts institutional strengthening. We propose a multi-dimensional view of legitimacy collapse (cognitive, pragmatic, moral, and socio-political) that highlights cross-dimensional cascades and the role of entrepreneurial agency in mitigating the collapse. The key insight of our study is that legitimacy in emerging industries can rapidly collapse not only because of obvious failures, but also because the very forces that once built legitimacy can unravel it.