Journal of Management Information Systems

Volume 13 Number 2 1996 pp. 59-75

Market Dominance as a Precursor of a Firm's Failure: Emerging Technologies and the Competitive Advantage of New Entrants

Clemons, Eric K, Croson, David C, and Weber, Bruce W

ABSTRACT: New entrants in many industries are able to challenge the business of historically dominant firms. In many markets, dominant players have pursued pricing and service policies that, although once highly effective, now make their markets attractive targets for aggressive new entrants. The entrants' strategies rely on lower overhead costs, new technologies, alternative distribution channels, and the active targeting of profitable customers. Several factors will make it possible for entrants to attack dominant players; simplistic historical pricing mistakes or policies of promising or providing universal service will make it attractive for new entrants to attack. Restrictions on the flexibility of incumbents--both externally and internally imposed--may make it difficult for dominant players to defend themselves effectively against attack by more flexible entrants with cream-skimming strategies and newer technology. We develop a set of alternatives for incumbent firms facing increasing "contestability" in their markets and the threat of agile entrants.

Key words and phrases: banking, contestability, death spiral, dominant firms, insurance, market entry, market segmentation, strategic use of information