Why first movers may fail: Global versus sequential improvement of complex technological artefacts

Abstract

We propose a new theory of late mover advantage where new entrants can leapfrog incumbents through introducing new functionality of an existing technology. Since first mover firms did not take into account new functionalities discovered after they entered, they limited their search on older functionalities and find it difficult to optimize functionalities once discovered later on. Late movers, in contrast, do not suffer from such technological irreversibilities, since they only start searching once all functionalities are known. Based on an agent-based model representing the innovation process of a complex technological artifact with a growing number of functionalities, we can conclude that, a first mover disadvantage can appear, particularly when the technology in question is large and complex, as for example in the case of current key technologies such as ICT, energy and mobility systems.