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Volume :27 Issue : 2 2020      Add To Cart                                                                    Download

Disentangling the Effect of Switching Costs on the Presence of First-Mover Advantage: Evidence from Kuwait

Auther : Mishari A. Alnahedh and Larry P. Pleshko

Purpose: The purpose of this paper is to disentangle the effect of switching costs as an isolating mechanism on the presence of first-mover advantage in the service industries.
Study design/ methodology/ approach: This study employs confirmatory factor analysis and structural equation modeling, performing mediation analysis to answer the research question.
Sample and data: A sample of 106 firms in four services industries and 968 responses from current customers in Kuwait were used in the study.
Results: The results show that switching costs operate as a mediating mechanism that helps explain the presence of first-mover advantage. They show that six dimensions (pre-switching search and evaluation costs, costs of lost performance, uncertainty costs, post-switching behavioral and cognitive costs, sunk costs, and setup costs) of switching costs lock-in customers for early entrants.
Originality/ value: This study provides empirical evidence that a direct first-mover effect is evident in service industries in Kuwait. It also disentangles the role of switching cost as a mediator and uncovers the dimensions of switching costs that explains how entry timing may generate a competitive advantage.
Research limitations/implications: Entrepreneurs and potential market entrants should not only consider the overall role of switching costs of the best time to enter the market, but also the differential effects each dimension of switching costs has on protecting the first-mover advantage. The empirical investigation of the multifaceted role of switching costs on first-mover advantage in the Arab region supports public policymaking to develop a local entrepreneurial ecosystem and anti-trust policies that allow for new venture entries and survival in markets dominated by incumbents.

 

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