Decoupling market incumbency from organizational experience : a study of biotechnology's impact on the market for anti-cancer drugs

Abstract

In studies of creative destruction, scholars agree that, within research-intensive industries, the demise of incumbents is significantly determined by their lower productivity in researching the radically new technology (Henderson, 1993). Such differences in the research competence of incumbent vs. entrant firms are explained in the literature through theories about established vs. de novo firms (e.g., Nelson and Winter, 1982). A disconnect arises because, frequently, the most competent entrants are established (experienced) firms themselves (i.e., diversifying entrants). In fact, studies where diversifying and de novo entrants are compared find in the former the same mechanisms that scholars have argued take place in incumbent firms (e.g., Mitchell and Singh, 1993; Carroll et al., 1996). With this insight in mind, I present in this dissertation a study that decouples market incumbency from organizational experience. I walk away from the current hypothesis of incompetence in research and development of a radical new technology in the case of incumbents. I instead construct a framework highlighting the competitive disadvantages (organizational inertia) and advantages (competence re-use) that apply to all established firms (incumbents and diversifying entrants) vis-a-vis de novo firms.

(cont.) I operationalize this study within the context of the market for anti-cancer drugs while this market transitions from cytotoxic ("random") to targeted ("mechanism-driven") drug development as a consequence of the biotechnology revolution. I find support for the relevance of distinguishing between diversifying and de novo entrants. In fact, in statistical analyses, it is established vs. de novo firms, and not incumbents vs. entrants, that become the relevant populations to compare. Based on further results, I discuss two more propositions. First, whether R&D competences can be decomposed into a technology-specific side and an application-specific side, where the latter represents a unique source of competitive advantage for incumbents even when technologies radically change. And second, whether we should expand attention beyond the advantages of being the first to move into a market, towards being the first to move into a technological competence.