Overcoming the Incumbent Dilemma: The Dual Roles of Multimarket Contact During Disruption

Abstract

Incumbents ignore nascent markets created by disruptive product innovations when previous industry and market experiences, ingrained in technology frames, leads them to characterize these innovations as unattractive to important customers and undervalue the growth opportunity. Competitors made salient through multimarket contact (MMC) may attenuate this incumbent dilemma if they enter the new market thereby signalling its value, or if an incumbent’s experience with MMC rivals augments its capacities to anticipate the potential value of a disruptive innovation. Building on prior work, we theorize MMC with competitors from the same industry as the incumbent (Insider MMC) encourages information‐based entry into a new market created by a disruptive product innovation – incumbents follow the choices of similar MMC rivals. We further theorize MMC with competitors from a different industry as the incumbent (Outsider MMC) broadens incumbent technology frames, reducing the tendency to discount disruptive innovation and increasing the likelihood an incumbent enters the new market – irrespective of whether the Outsider MMC rivals enter. Using data from the telecommunications industry from 1991 through 2005, we investigated relationships between MMC and incumbent entry into a new disruptive market, packet‐based networking switches. We found MMC linearly increased the likelihood of incumbent entry and that observable entry patterns are consistent with Insider and Outsider MMC affecting entry through distinctive mechanisms. We suggest disruptive innovation theory could be usefully extended through further consideration of how competitive experiences, particularly MMC, affect incumbent responses.