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First Mover Advantage

Closely related to the concept of the learning curve is the concept of the first mover advantage. While a learning curve advantage is a benefit that accrues to an early entrant through the effects of experience on the ability to produce or sell products more efficiently and effectively, first mover advantages represent the benefits that accrue to early entrants from simply being first in the market, even if there are no gains from experience. For example, if a new company introduces a piece of accounting software, it may have a “first mover” advantage because the cost to customers of switching to competitor products later may be too high to justify the effort, thereby allowing them to retain customers even after competitors copy their products and services.

“First mover” advantages are very important to you, as a technology entrepreneur, because they can provide a mechanism for capturing the returns to new product introduction that works immediately from firm founding forward in time. Therefore, unlike learning curves and reputation effects, first mover advantages are very useful mechanisms for independent entrepreneurs, rather than just to the managers of large, established companies.


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