The art of war is to avoid fighting: an analysis of entry deterrence in the context of an innovation shock

Abstract

Purpose This study tests the theory of entry deterrence in the context of an innovation shock. Specifically, this article investigates the extent to which within-niche product proliferation implemented by incumbents (firms already established in a submarket), their organizational identity (generalist vs. specialist) and their willingness to cannibalize their own products can deter rivals from entering their submarkets following an innovation shock. Design/methodology/approach To achieve the purpose, this study used a longitudinal database containing monthly information on all electric vehicles marketed in Spain between 2003 and 2017. We estimated models with random parameters (to capture unobserved heterogeneity) in panel data. Findings Our findings reveal that the opportunities provided by the innovation shock to entrants are too strong for them to refrain from launching products in submarkets where the incumbents implement a within-niche proliferation strategy. Only specialist companies that proliferate products in a submarket can protect their market share from competitive erosion. Our findings also show that incumbents' willingness to cannibalize the products they market allows them to deter entry. Originality/value This study contributes to the literature by providing, for the first time, empirical evidence on how entry deterrence theory operates in the context of an innovation shock, from the perspective of incumbents. In particular, we offer a novel approach by integrating credible commitment with product proliferation strategies and by proposing a new way of operationalizing credible commitment. Finally, this work is the first to combine within-niche product proliferation, organizational identity and intentional cannibalization to analyze incumbents' ability to prevent rival entry.