Are Switching Costs Always Effective in Creating First-Mover Advantage? The Moderating Role of Demand and Technological Regimes

This paper presents a simulation model of industry evolution in which demand regimes and technological regimes shape the relationship between consumers switching costs and first-mover advantage. Our results show that the extent to which switching costs can be an effective mechanism in generating first-mover advantage depends on demand regimes: switching costs have a very strong impact when demand is homogeneous, and a much weaker one when demand is fragmented. The dimensions of demand regimes contribute differently to this outcome: horizontal fragmentation affects the structure of the industry, vertical fragmentation works at the firm level. Finally, the dimensions of technological regimes do not matter when demand is homogeneous; in the opposite case, they are the key determinants of the existence of advantages for early movers.