Innovation, New Market and Governance Choices of Entry: The Internet Brokerage Market Case

Abstract

This paper investigates the case of market entry strategies following the introduction of a disruptive innovation. Recognizing that market entry strategies have been envisioned in the literature as a discrete phenomenon, we develop an empirical framework that portrays these strategies as a capability building process. Three organizational modes are integrated into our model: acquisition, alliance and market transaction. We compare the first two with the third and test the model in the setting of the online brokerage industry by using a sample of 897 moves made by 98 firms between 1994 and 2000. We suggest that firms' entry modes can be differentiated along factors specific to market timing as well as the degree of specificity of targeted capabilities. Our findings show that acquisitions are used to access specific capabilities. This means that external sources can be used when firms face a make‐or‐buy decision in the aftermath of technological change. Alliances appear to play a limited role while market transactions are widely used. By suggesting that entry into a new industry is not a discrete phenomenon, our research should open the avenue to additional inquiries on this topic.